Nonbank mortgage lenders regained their footing in the third quarter, upping their net profit by 28% to $2,594 on each loan originated, according to a quarterly report published by the Mortgage Bankers Association on Tuesday. We hope you enjoyed last week’s edition where we talked about October Saw Mortgage Apps Rise For New Homes By 6%. This week we’re bringing you:
Zillow hit with multiple shareholder lawsuits*
Company also warns investors to not take TRC Capital’s mini-tender offer to purchase two million stock shares
Zillow’s Chief Operating Officer Jeremy Wacksman virtually appeared this September at a conference held by investment banking company Piper Sandler, and proclaimed, “The strength and the appeal for Zillow Offers just continues to grow. And we’re even more confident now that this is going to be a service really in all-weather markets.”
Six weeks after Wacksmans’ remarks, Zillow said it was winding down an iBuying program responsible for the majority of the company’s revenue and operating expenses. Zillow CEO Rich Barton stated Zillow Offers’ price forecasting model was too volatile.
A pair of lawsuits on behalf of Zillow investors cite this statement by Wacksman – and similar rosy claims in 2021 by Barton and Allen Parker, the company’s chief financial officer – as illegally misleading investors.
Shareholders routinely file lawsuits if a company’s stock price plunges, and these cases are no different. Zillow had a market value of $48 billion on Feb. 10 following a company earnings report; its market cap was $13.8 billion at the close of Nasdaq trading Monday.
But the Zillow lawsuits raise the question of whether executive’s upbeat pronouncements were not mere self-promotion but “materially false and/or misleading statements” in violation of the federal Securities Exchange Act.
Zillow has not yet filed a reply to the cases, and the company declined to comment on them, besides a statement that, “We are aware of the lawsuits filed recently and we are currently reviewing them. As a general practice, we do not discuss pending litigation.”
The first shareholder lawsuit was lodged Nov. 16 in federal court in Seattle on behalf of Dibakur Barua, and the proposed class action does not describe who Barua is other than someone who “purchased or otherwise acquired Zillow securities between February 10, 2021, and November 2, 2021.”
Mortgage Profits Rebound from Q2 Slide*
While the profits were nowhere near 2020 levels, independent mortgage banks and mortgage subsidiaries of chartered banks reported their third quarter 2021 gains did improve on those in Quarter 2. The report from the Mortgage Bankers Association (MBA) on mortgage bankers’ performance showed an average net gain of $2,594 on each loan that was originated during the quarter. This was up from a reported gain of $2,023 per loan in the second quarter of 2021,
Total production revenue (fee income, net secondary marking income and warehouse spread) increased to 396 basis points (bps) in the third quarter, up from 375 bps in the previous period. This equated to $11,734 per loan compared to $10,691 in Q2. Net secondary marketing income increased to 310 bps from 297 bps or $9,300 per loan compared to $8,500.
The average pre-tax production profit was 89 bps in the third quarter of 2021, up from an average net f 73 bps in the second quarter of 2021, and down from 203 basis points on a year-over-year basis. Over the period stretching from the third quarter of 2008 to the Q3 of 2021 pre-tax production profits averaged 56 basis points.
Marina Walsh, MBA’s Vice President of Industry Analysis noted the rebound from declining profits in the second quarter, but said profits were down more than half from the record profit a year earlier. “Production revenue was the difference-maker, increasing more than 20 basis points from the second quarter. However, production revenue was still down almost 80 basis points compared to a year ago,” she said.
Nonbank profit margins improve, but expenses are up*
Average nonbank saw profit margins increase 28% from the second quarter
Nonbank mortgage lenders regained their footing in the third quarter, upping their net profit by 28% to $2,594 on each loan originated, according to a quarterly report published by the Mortgage Bankers Association on Tuesday. But they would be wise to look at expenses, which climbed to the second-highest rate in recorded history.
The results follow a turbulent second quarter, in which lenders fretted as net income and gain-on-sale margins cratered. The trade association found that from April to June 30, the reported net gain for nonbank lenders was $2,023, down from a reported gain of $3,361 per loan in the first quarter of 2021.
The reason for the rebound in the third quarter had to do with production revenue, which increased by more than 20 basis points from the previous quarter, said Marina Walsh, vice president of industry analysis at the MBA.
Total production revenue in the third quarter came in at 396 basis points, up from 375 bps in the second quarter. However, despite the increase, Walsh noted that compared to a year ago, production revenue lagged in the third quarter by almost 80 bps.
On a per-loan basis, production revenue climbed to $11,734 per loan in the third quarter, up from $10,691 per loan in the previous quarter, the report said.
Overall, 92% of nonbank lenders that partook in MBA’s survey posted overall profitability in the third quarter, up from 84% in the second. In total, 365 companies participated in the survey.
Meanwhile, average production volume fell in the third quarter to $1.17 billion per nonbank lender, a dip from $1.35 billion in the second quarter. That corresponded with a drop in the number of loans originated, from 4,615 on average in the second quarter, to 3,889 in the third quarter, according to the survey’s findings.
The trade group also noted that total loan production expenses and personnel expenses jumped in the third quarter, averaging to $9,140 and $6,185 per loan, respectively.
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