Mortgage Lenders Cutting Margin Despite Phenomenal Earnings In Q1

In their 2021 Q1 earnings reports, many of the largest mortgage lenders in the country announced record loan volumes but said margins are shrinking. 

In spite of closing greater loan volumes, lenders said that the increase in competition in the wholesale space, resulted in them making less money than Q4 of 2020. 

Many reported falls in their gain-on-sale margins. 

Even though the margins remained high enough to maintain profitability, many analysts predicted a post-refi boom period with dropping volumes, low margins, and huge competition for the volume.

Founder & CEO of Proptech firm EasyKnock and former global head of equities at Cantor Fitzgerald, Jarred Kessler was asked by MPA to understand why these margins are shrinking, and what it would mean for loan officers and independent brokers. 

Kessler shared, that there are 2  factors – one is that due to the upward pressure in the 10-year treasury yield some mortgage companies to capture more volume are ready to offset that and absorb those expenditures in their margins. 

The second reason being advertising.

He added, that mortgage companies usually hire when things are good and contract when things slow down and that is what is showing now as cost-cutting.

Kessler mentioned that companies with good technology will benefit because they have greater control of their human cost. Companies relying on staff to achieve scale could fall behind.

And smaller independent brokerages, are in a tighter situation because of their own lack of scalability. 

But they do well in customer service, relationships, and local market knowledge. 

In the purchase business-driven market a broker who has developed unique ways to market themselves will be able to fly high.

Kessler suggests doing well a company needs to invest in technology and pick the best people who can navigate through good and bad times and take care of customer service, which is always an advantage.