The typical mortgage lender made a profit of $701 per loan in Q3

Independent mortgage banks (IMBs) as a group expanded their profitability in the third quarter of 2024. But fewer companies recorded profits compared to the previous quarter, despite a brief dip in mortgage rates.

According to the Mortgage Bankers Association (MBA), IMBs and mortgage subsidiaries of chartered banks reported an average pretax net profit of $701 per loan in Q3 2024, up from $693 in Q2. But only 71% of companies in the MBA survey reported a profit across their origination and servicing lines, a decrease from 78% in the prior quarter.

“Mortgage companies reported net production profits for the second consecutive quarter after an unprecedented period of net production losses that spanned two years,” Marina Walsh, the MBA’s vice president of industry analysis, said in a statement.

In late October, Walsh told the crowd at MBA Annual in Denver that industry production and expense management moves enacted in the second quarter remained consistent in the third quarter. She expected most companies to be profitable in Q3. 

A total of 345 companies provided production data for the third quarter. IMBs represented 82% of the respondents with the remaining 18% being mortgage subsidiaries or nondepository institutions.

Total production revenue — which includes fee income, net secondary marketing income and warehouse spread — decreased slightly to 341 basis points (bps) in Q3, down from 347 bps in Q2. On a per-loan basis, revenue fell from $11,499 in Q2 to $11,417 in Q3.

Meanwhile, total loan production expenses (including commissions, compensation, occupancy, equipment and other corporate allocations) dropped from 330 bps to 323 bps during the period. This lowered per-loan expenses to $10,716 in Q3, down from $10,806 in Q2, but this figure is still well above the average cost of $7,573 observed since mid-2008.

Operating income from servicing, excluding mortgage servicing rights (MSR) amortization, valuation adjustments, and gains and losses on MSR bulk sales, rose from $88 to $93 per loan during the third quarter.

The sale of MSRs does not directly impact company earnings as a revenue stream, but the conversion of MSRs into cash via sales bolsters a lender’s cash flow and overall liquidity. MSR markdowns in a declining mortgage rate environment can also affect a company’s profitability. 

Average production volume per company increased to $542 million (or 1,642 loans) in Q3 2024, up from $492 million (or 1,503 loans) in Q2. Purchase loans made up 84% of total volume.

Looking forward, the MBA expects the mortgage origination market to improve by 28.5% in 2025, reaching $2.3 trillion in volume.