Independent Mortgage Bank Origination Profits Take Q1 Hit

The Mortgage Bankers Association (MBA) has reported that independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a net loss of $1,972 on each loan they originated in Q1 of 2023, an improvement from the reported loss of $2,812 per loan in Q4 of 2022.

“A net production loss of 68 basis points in the first quarter of the year is an improvement over the record 99-basis-point loss reported in the fourth quarter of 2022,” said Marina B. Walsh, CMB, MBA’s VP of Industry Analysis. “Conditions continue to be challenging for the industry, with now four consecutive quarters of production losses and nine consecutive quarters of volume declines.”

In terms of profitability, Walsh noted that including both the production and servicing business lines, 32% of companies were profitable in Q1 of 2023, up from 25% in Q4 of 2022. The average production volume was $398 million per company in Q1, down from $436 million per company in Q4. The volume by count per company averaged 1,264 loans in Q1, down from 1,395 loans in Q4.

“One silver lining from the first quarter is that production revenues improved by 40 basis points,” added Walsh. “However, costs continued to escalate with the further drop in volume, and reached more than $13,000 per loan despite substantial personnel reductions.”

Additional findings of the MBA’s Q1 2023 Quarterly Mortgage Bankers Performance Report include:

• Total production revenue (fee income, net secondary marketing income and warehouse spread) increased to 358 basis points in Q1, up from 317 bps in Q4. On a per-loan basis, production revenues increased to $11,199 per loan in Q1, up from $9,637 per loan in Q4.
• The purchase share of total originations, by dollar volume, remained unchanged at a study high of 88% in Q1. For the mortgage industry as a whole, the MBA estimates the purchase share was at 80% in Q1 of 2023.
• The average loan balance for first mortgages increased to $329,159 in Q1, up from $322,225 in Q4.
• Total loan production expenses–commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations–increased to a study-high of $13,171 per loan in Q1, up from $12,450 per loan in Q4 of 2022. From Q3 of 2008 to Q1 2023, loan production expenses have averaged $7,172 per loan.
• The average number of production employees per company declined from 413 production employees in Q4 of 2022 to 374 production employees in Q1 of 2023 (on a repeater company basis).
• Servicing net financial income for Q1 (without annualizing) was $54 per loan, up from $37 per loan quarter-over-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 $102 per loan in the first quarter, down slightly from $104 per loan in the Q4.
• Including all business lines (both production and servicing), 32% of the firms in the study posted pre-tax net financial profits in Q1, up from 25% in Q4.