Independent mortgage banks and mortgage subsidiaries of chartered banks posted a net gain of $223 on each loan they originated in the first quarter, according to the latest Quarterly Mortgage Bankers Performance Report from the Mortgage Bankers Association (MBA).
That’s a massive quarterly plunge, down from $1,099 per loan in fourth-quarter 2021.
A variety of factors led to the big decline, including lower production revenue. Average pretax net production income during the first quarter sank to only 5 basis points (bps), down from 38 bps in the prior quarter and down 124 bps from first-quarter 2021. The Q1 2022 average pretax net production income is at its lowest level since fourth-quarter 2018, and far less than the quarterly average of 55 bps from Q3 2008 to Q1 2022.
The chief reason for the plummet in profits, however, was cost. Total loan production expenses swelled to $10,637 per loan – the highest on record. First-quarter expenses were up more than $1,000 per loan from Q4 2021 and more than $2,500 per loan from one year ago. For context, loan production expenses from Q3 2008 through Q1 2022 have averaged $6,829 per loan. Personnel expenses, in particular, were up as companies averaged $7,113 per loan, up from $6,438 one quarter earlier.
Meanwhile, production volumes also took a dip with several different headwinds hampering loan originations to start the year. Average production volume slid to $808 million per company in Q1 2022, down from $1.13 billion at the end of last year. Companies closed an average of 2,587 loans in the first quarter, down from 3,711 loans in Q4 2021.
“It was a challenging mortgage market environment in the first quarter of 2022, with rising mortgage rates and low housing inventory resulting in lower production volume,” said Marina Walsh, the MBA’s vice president of industry analysis. “In addition to cost increases, productivity slipped for both sales and fulfillment staff. Furthermore, pull-through rates of closings to applications declined by 5 percentage points in the first quarter, affecting both revenue and cost.”
“With the record-setting refinance volume of the past two years in the rearview mirror, the mortgage industry is clearly in a period of transition and many companies will need to make tough decisions.”