Profit Margins Are Plunging For Nonbanks

iLeads Mortgage Market Minute

Nonbanks and mortgage subsidiaries of chartered banks reported grim profitability figures in the fourth quarter of 2021, when costs reached a new high and margins fell to the lowest level since early 2019. We hope you enjoyed last week’s edition where we talked about Rents Are Rising 4 Times Faster Than They Did In 2020. This week we’re bringing you:


Interest in residential mortgage loans fell 8.1% for the week ending March 18 as mortgage rates rose to 4.5%, the highest level in years, according to the Mortgage Bankers Association‘s latest survey.

“The jump in rates comes as markets moved to price in a much faster pace of rate hikes, as well as expectations of fewer MBS purchases from the Federal Reserve,” Joel Kan, associate vice president of economic and industry forecasting for the MBA, said in a statement.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $647,200) increased to 4.50% from 3.27%, with points increasing to 0.59% from 0.54% (including the origination fee) for 80 percent LTV loans. The 23 basis points increase last week was the largest weekly change since March 2020.

Higher rates have significantly impacted the refinance activity, both for conventional and government loans. According to the MBA, refi applications fell 14.3% from the prior week and were down 54.2% from a year ago.

Meanwhile, the seasonally adjusted purchase index decreased 1.5% from one week earlier and was 12% lower year-over-year. According to Kan, purchase FHA and VA applications had a larger drop, compared to a small decline in purchase conventional apps.

“First-time homebuyers, who rely on these government programs, are increasingly challenged by both the rapid increase in home prices and higher mortgage rates,” he said. “Repeat homebuyers, who are more likely to use conventional loans, benefit from the gains in home equity realized on a sale which can be used to fuel their next purchase, even with rates moving higher.”

Read more in-depth here.

Mortgage rates reached 4.27%, the highest level since May 2019


Rates added to the record-breaking move higher today. The carnage has now earned early 2022 the dubious distinction of being the biggest 3-month rate spike since 1994.

Adults who are old enough to remember 1994 have always had an ace in the hole when it comes to today’s young whipper snappers complaining about abrupt spikes in mortgage rates. Sure, even older adults have the first few months of 1980, but 1994 was a more compelling example because it wasn’t part of the once-in-a-lifetime inflationary spike. As such, it is a more worthy comparison to any modern example of rate volatility.

As of today, the race between the first few months of 1994 and 2022 are neck and neck in terms of damage done to mortgage rates in a short amount of time.

That said, it really depends on where you draw the line on time frames and movement amounts. To be sure, the 3 months between late Dec 2021 and late March 2022 have seen the same if not slightly more movement than Feb/Mar/April 1994.

Read more in-depth here.

Profit margins are plunging for nonbanks


Nonbanks and mortgage subsidiaries of chartered banks reported grim profitability figures in the fourth quarter of 2021, when costs reached a new high and margins fell to the lowest level since early 2019. And most industry observers think it will only get worse in the next few quarters.

Net gains in Q4 declined to $1,099 on each loan originated, compared to $2,594 in the previous quarter, according to a report published by the Mortgage Bankers Association (MBA) on Thursday.

The data, compiled from 359 nonbank lenders, shows that the average pre-tax production profit was just 38 basis points in the fourth quarter, down from an average net production profit of 89 bps in the third quarter and a decrease from 137 bps on a year-over-year basis. (The average quarterly pre-tax production profit, from the third quarter of 2008 to the most recent quarter, is 56 basis points.)

Additionally, the average production volume came in at $1.13 billion per company, a small decline from $1.17 billion in Q3. Volume count per company averaged 3,711 loans, a drop from the 3,889 loans made the previous quarter, the MBA said.

Marina Walsh, vice president of industry analysis at the MBA, said in a statement that net production profits for nonbanks reached their three-year low following a strong run of profitability.

“Among the headwinds, were lower revenues and higher production costs,” she said.

Read more in-depth here.

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