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12 PROFIT-PER-LOAN HIT RECORD HIGHS IN 2020 e Mortgage Bankers Association (MBA) has reported that independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks made an average profit of $4,202 on each loan originated in 2020, a $1,470 increase per loan over 2019's totals. "e year 2020 was a banner year for the mortgage industry, despite the COVID-19 global health crisis essentially shutting down the U.S. economy in March and forcing personnel into remote work environments," said Marina Walsh, MBA's Vice President of Industry Analysis. "A surge in housing and mortgage demand, record-low mortgage rates, and widening credit spreads translated into soaring net production profits that reached their highest levels since the inception of MBA's annual report in 2008." e Annual Mortgage Bankers Performance Report found that the average production volume was $4.5 billion (16,198 loans) per company in 2020, up from $2.7 billion (10,411 loans) per company in 2019. On a repeater company basis, average production volume was $4.4 billion (15,669 loans) in 2020, up from $2.5 billion (9,430 loans) in 2019. For the mortgage industry as whole, MBA estimates production volume at $3.83 trillion in 2020—the highest annual volume ever reported—up from $2.25 trillion in 2019. Profits on the production side compensated for the servicing losses. Including both production and servicing operations, 99% of the firms posted overall pre-tax net financial profits in 2020, compared to 92% of firms in 2019 and only 69% of firms in 2018. "In early 2021, we are already seeing declines in pipeline volume—particularly refinance volume—as mortgage rates have risen in the first quarter," Walsh said. "Also, secondary marketing income has dropped from last year's highs, as credit spreads have tightened. Mortgage companies that can adjust quickly to changing market conditions and are able to harness still robust purchase demand are best poised for a successful 2021." Walsh noted that the driver of production profitability in 2020 was production revenue, led by strong secondary marketing gains. Historically, production expenses drop when volume increases, but per-loan production expenses rose in 2020, as companies offered signing bonuses, incentives, overtime, and other compensation to address capacity constraints and meet mortgage demand. Furthermore, rising loan balances meant large sales commissions, often earned based on a percentage of the loan amount. Journal