Mortgage bankers' fifth profitable quarter was bought with cost cuts, not pricing

Independent mortgage bankers and bank mortgage subsidiaries booked a fifth consecutive quarter of pretax net production profits, with average volume per firm at $689 million, the highest since the second quarter of 2022, according to the Mortgage Bankers Association's quarterly survey ^{[2] [1]}. The gain came from the expense line rather than from pricing, which makes it a thin cushion.

Net production profit was $973 per loan, up from $727 three months earlier ^[4], or 25 basis points against 16 ^[5]. Production revenue per loan fell $717 to $11,909 ^{[7] [2]}. Production expenses per loan fell $962 to $10,936 ^{[9] [3]}. Subtract one from the other and you get $245 of net improvement, which is essentially the entire $246 rise in per-loan profit ^{[4] [1]}. In basis points, revenue dropped 20 and expenses dropped 28 ^[7]; Marina Walsh, the MBA's vice president of industry analysis, said expenses reached their lowest level in basis points since the third quarter of 2021 ^[8]. Those expenses include commissions, compensation, occupancy, equipment and corporate allocations ^[10], which is to say they are the line most likely to reflate with hiring.

One housekeeping note: the survey's year-earlier per-loan dollars do not reconcile. Revenue of $12,551 minus expenses of $10,965 for the year-ago quarter implies $1,586 of profit per loan, not the $950 reported, while the current and prior quarters both tie out [c7b] [c9b] ^[9]. The quarter-over-quarter comparison is the one to use.

Even at 25 basis points, this is a subnormal quarter. Walsh put the historical average since 2008 at 39 basis points ^[11], leaving the industry 14 basis points short of its own long-run run rate ^[5]. Roughly 85% of the more than 330 companies in the sample were profitable overall once servicing is included ^[12], meaning about one firm in seven still lost money with volume at a four-year high ^[6]. Among public IMBs posting GAAP net losses for the period were Finance of America, loanDepot, Onity, UWM Holdings and Better Home & Finance ^[13].

Servicing is doing less work than the headline number suggests. Net financial income was $80 per loan, up from $77 and from $30 a year earlier ^[14]. But servicing operating income, which strips out mortgage servicing rights amortization, valuation and sales, was $85 per loan, down from $93 in the first quarter and $90 a year ago ^[15]. The operating business is drifting down; the marks are carrying it.

Boston Consulting Group, which tracks 10 banks and six publicly traded IMBs, reported a 9% year-over-year volume increase for the quarter ^[16]. Of the seven firms for which it had gain-on-sale data, five were lower quarter to quarter and four were lower year over year ^[17]. The exceptions were Rithm, up 20 basis points on the quarter, and UWM, up 10 ^[18]. Purchase share at four IMBs slipped 10 percentage points to a median of 62% ^[19].

What to watch: whether cost per loan holds when volume stops rising, since a 9 basis point profit gain was manufactured out of a 28 basis point expense move ^{[7] [5]}; whether gain-on-sale margins keep narrowing across the BCG sample ^[17]; and whether servicing operating income continues falling while reported servicing income rises ^[15].