Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a net loss of $2,812 on each loan they originated in the fourth quarter of 2022, down from a reported loss of $624 per loan in the third quarter of 2022, according to the Mortgage Bankers Association’s (MBA) Quarterly Mortgage Bankers Performance Report released today.
The numbers, in some instances, haven’t been this bad in 11 years. Production volume has also consistently dropped over the last two years.
“For the third consecutive quarter, the average pre-tax net production income was in the red, reaching a new survey low of 99 basis points of loss in the final three months of 2022,” said Marina Walsh, CMB, MBA’s vice president of industry analysis. “Fourth-quarter results were abysmal. Basis-point revenues dropped to levels not seen since the fourth quarter of 2011. Production costs reached their highest levels since the inception of MBA’s report, and production volume has now declined for eight consecutive quarters."
Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to a study-high of $12,450 per loan in the fourth quarter, up from $11,016 per loan in the third quarter of 2022. From the third quarter of 2008 to last quarter, loan production expenses have averaged $7,068 per loan.
Walsh said, “This has been a challenging time for mortgage originators, with cost-cutting measures, including layoffs, not being enough yet to turn the tide. Even when all business lines are considered – both mortgage production and mortgage servicing – only one in four companies were profitable in the fourth quarter of 2022.”
David Stevens, a former president and CEO of the MBA, said, “The loss numbers are enormous and most IMBs have been losing money on a monthly basis at significant levels. The unfortunate reality is that this cannot continue. While we will see some uptick in volume with the spring market and the impact to rates from the bank turmoil, many companies will ultimately end up choosing to sell to others, or simply shut their doors. This is the outcome of a market right sizing of this magnitude. It’s needed, unfortunately, and ends up being a survival of the fittest in the end.”
Walsh noted that average loan balances dropped by 4%, indicative of a moderation in home-price growth. Based on MBA’s latest forecast, total industry volume is expected to pick up starting in the second quarter. The 30-year fixed mortgage rate is forecast to decline as the year progresses.
Additional Report Findings:
- The average pre-tax production loss was 99 basis points (bps) in the fourth quarter of 2022, down from an average net production loss of 20 bps in the third quarter of 2022, and down from a gain of 38 basis points one year ago. The average quarterly pre-tax production profit, from the third quarter of 2008 to the most recent quarter, is 50 basis points.
- Average production volume was $436 million per company in the fourth quarter, down from $578 million per company in the third quarter. The volume by count per company averaged 1,395 loans in the fourth quarter, down from 1,819 loans in the third quarter.
- Total production revenue (fee income, net secondary marketing income and warehouse spread) decreased to 317 bps in the fourth quarter, down from 326 bps in the third quarter. On a per-loan basis, production revenues decreased to $9,637 per loan in the fourth quarter, down from $10,392 per loan in the third quarter.
- The purchase share of total originations, by dollar volume, increased to a study high of 88 percent in the fourth quarter from 86 percent in the third quarter. For the mortgage industry as a whole, MBA estimates the purchase share was at 83 percent in the fourth quarter.
- The average loan balance for first mortgages decreased to $322,225 in the fourth quarter, down from $335,940 in the third quarter.
- The average number of production employees per company declined from 443 production employees in the third quarter to 390 production employees in the fourth quarter (on a repeater company basis).
- Servicing net financial income for the fourth quarter (without annualizing) was at $37 per loan, down from $102 per loan in the third quarter. Servicing operating income, which excludes MSR amortization, gains/loss in the valuation of servicing rights net of hedging gains/losses, and gains/losses on the bulk sale of MSRs, was $104 per loan in the fourth quarter, up from $95 per loan in the third quarter.
- Including all business lines (both production and servicing), 25 percent of the firms in the study posted pre-tax net financial profits in the fourth quarter, down from 46 percent in the third quarter.
The MBA said 82% of the 310 companies that reported production data for the fourth quarter of 2022 were independent mortgage companies, and the remaining 18 percent were subsidiaries and other non-depository institutions.
