The mortgage banking industry made a strong recovery in the second quarter of 2024, demonstrating resilience amid economic uncertainty.
Independent mortgage banks and mortgage subsidiaries of chartered banks reported significant increases in pre-tax net profits per loan, reversing the downward trend from previous quarters.
The Mortgage Bankers Association’s (MBA) Quarterly Mortgage Bankers Performance Report highlighted these positive developments, providing a comprehensive look at the industry’s performance during this period.
In the United States, the MBA Weekly Mortgage Application Survey offers a broad overview of the national mortgage industry, covering all types of mortgage originators, including commercial banks, thrift institutions, and mortgage banking businesses.
The Market Index, a key component of this survey, represents the total market, encompassing all mortgage applications received throughout the week, whether for purchase or refinance. The survey covers more than 75% of all retail home mortgage applications in the US, making it a vital indicator of market trends.
Refinance applications surge amid housing market rally
Mortgage applications in the US saw a significant increase, rising by 16.8% in the week ending August 9th, marking the largest weekly gain since January 2023.
This surge extended the previous week’s 6.9% growth and coincided with a sharp decline in mortgage rates.
The rate on benchmark contracts dropped nearly 30 basis points since the start of the month, reflecting the Federal Reserve’s increasingly dovish outlook and the corresponding decrease in yields on long-dated Treasury notes and bonds.
Refinance applications, which are highly sensitive to changes in borrowing costs, skyrocketed by 35% compared to the previous week.
Meanwhile, applications to purchase a new home increased by a more modest 3%. This divergence highlights the immediate impact of falling interest rates on refinancing activity.
Marina Walsh, MBA’s Vice President of Industry Analysis, noted a significant improvement in the industry’s net production income during the second quarter of 2024.
This positive shift follows eight consecutive quarters of net production losses. Increased quarterly volume, improved productivity, and higher closings-to-applications pull-through rates contributed to a reduction in production costs per loan by nearly $1,800.
Despite a slight drop in production revenues compared to the previous quarter, these factors combined to drive higher net profits.
80% of mortgage companies report profitability
One of the most encouraging findings from the report is that over 80% of the mortgage companies in the sample reported overall profitability across both manufacturing and servicing business lines. This is a substantial improvement from the previous quarter, where only 59% of firms reported pre-tax net financial profits.
The average pre-tax production profit in Q2 2024 was 17 basis points, a notable recovery from the net production losses reported earlier.
Key highlights from MBA’s quarterly report:
Financial Profits: 78% of firms reported pre-tax net financial profits, up from 59% in the previous quarter.
Production Profitability: Average pre-tax production profit rose by 17 basis points, indicating a positive trend.
Production Volume: Average production volume per firm increased to $492 million, with a higher loan count than the previous quarter.
Production Revenue: Total production revenue saw a slight decline, as did production revenue per loan.
Purchase Share: Purchase transactions accounted for 86% of total originations by dollar volume.
Loan Balances: The average loan balance for first mortgages increased, suggesting potential shifts in market dynamics.
The second quarter of 2024 marks a pivotal moment for the mortgage banking industry, characterized by increased profitability and overall financial improvement.
As the industry continues to navigate new challenges and opportunities, these positive trends provide optimism for the future. Mortgage firms that adapt to market dynamics and focus on operational efficiencies are well-positioned to capitalize on emerging opportunities and sustain growth in the evolving industry landscape.
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