Low mortgage rates drive unprecedented per-loan profit gain

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The average net gain in profit on loans originated by nonbanks and certain chartered bank subsidiaries hit a survey-record high in the second quarter, an industry trade group found.

That gain of $4,548 per loan recorded by the Mortgage Bankers Association was more than twice the $1,600 in per-loan profits these companies generated in the first quarter, and the $1,675 they brought in during the same quarter a year ago.

Expressed as a percentage of loan balance, net production income was 167 basis points in the second quarter, compared to more than 61 basis points in the first quarter and 64 basis points a year ago.

The increase in profitability seen between the first and second quarters was the largest recorded since the MBA began tracking the metric in 2008.

Coronavirus-related federal policy decisions that, among other things, pushed rates to historic lows were largely responsible for the housing-finance industry's fortunes during the second quarter. Low rates drove high production volumes during the period but had a downside for servicers.

Mortgage servicers incurred a net financial loss of $68 per loan in the second quarter compared to a per-loan loss of $171 in the first quarter and a per-loan loss of $74 in the second quarter of last year.

Even though the mortgage servicing segment incurred a net financial loss per loan, 96% of companies the MBA surveyed recorded pretax net financial profits in the quarter, up from 78% in the first quarter and 85% during the second quarter a year ago.

Servicing operating income was $23 per loan in the second quarter, compared to $52 per loan in the first quarter and $42 in the second quarter a year ago. The MBA excludes mortgage servicing rights amortization and other changes related to the financial value of MSRs, MSR hedges and bulk sales when calculating operating income in this segment.

The mortgage industry's ability to operate efficiently through work-from-home arrangements showed relative improvement during the second quarter.

In production divisions, an average of 3.5 loans were originated per employee compared to 2.7 in the first quarter and 2.3 in the second quarter of last year. Employees in sales, fulfillment and support are included in this category.

Refinance loans, which are less work-intensive and more rate-sensitive than purchase mortgages, accounted for 61% of production during the second quarter. In comparison, refinances represented 48% of loans in the first quarter and 26% of mortgages during the second quarter of year ago.

Several factors make the sustainability of industry profitability difficult to predict, including federal elections this fall.

The government-sponsored enterprises that purchase a large percentage of the U.S. market's home loans are currently scheduled to start charging a fee for refinances in December in order to help the GSEs rebuild capital and exit conservatorship. There is some concern that fee could affect consumer demand and profits if federal officials follow through with implementing it.

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Originations Refinance Mortgage Bankers Association Nonbank Mortgage rates GSEs Work from home Digital Mortgage 2020
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