Independent Mortgage Banks Reported Nearly $3k Loss on New Originations

Independent Mortgage Banks (IMBs) and other mortgage subsidiaries of all chartered banks during the fourth quarter of 2022 experienced a net loss on every mortgage origination, reporting they lost $2,812 on every loan according to the Mortgage Bankers Association.. This number is down by $624 from the third quarter of 2022. 

“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 VP 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." 

Added Walsh, “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.” 

Walsh further 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.  

Key findings of MBA’s Fourth-Quarter 2022 Quarterly Mortgage Bankers Performance Report include: 

• 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. 
• 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. 
• 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