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.

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