IMBs post $1,015 loss on each loan originated in third quarter

It’s the sixth straight quarter with negative net production income

The third quarter of 2023 was another rough period for lenders, with independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reporting a pretax net loss of $1,015 on each loan they originated.

That’s according to the Quarterly Mortgage Bankers Performance Report released by the Mortgage Bankers Association (MBA), which found that net production income has been in the red for six consecutive quarters.

“A decline in origination volume worsened net production losses in the third quarter of 2023,” said Marina Walsh, the MBA’s vice president of industry analysis. “While production revenues stayed relatively flat, per-loan production costs reverted to the third-highest level in the history of MBA’s survey, which reversed a portion of the cost improvements made in the second quarter.”

The net loss per loan in Q3 was a stark increase from the reported per-loan loss of $534 one quarter prior. Average production volume dipped to $477 million per company in the third quarter, down from $502 million per company in the second quarter. By loan count, IMBs averaged 1,497 loans in the third quarter, down from 1,553 loans in the previous three-month period.

Total production revenues, as Walsh noted, saw minimal change, growing slightly from 328 basis points in the second quarter to 329 bps in the third. On a per-loan basis, production revenues fell to $10,426 per loan in the third quarter, down from $10,510 in the second quarter.

But costs have ballooned. Total loan production expenses, including commissions, compensation, equipment, occupancy and other costs, grew to $11,441 per loan, up nearly $400 quarter over quarter. Consider that from Q3 2008 through Q3 2023, loan production expenses have averaged $7,305 per loan.

With sales volumes remaining subdued, it’s likely that the ongoing streak of losses hasn’t yet reached its end, according to Walsh.

“MBA forecasts lower industry volume over the next two quarters compared to last quarter, which means a turnaround is unlikely until the second quarter of 2024,” she said.

“One silver lining is that mortgage servicing continues to be a bright spot for many companies,” Walsh noted. “Combining both the production and servicing business lines, roughly half of mortgage companies stayed profitable in the third quarter of 2023.”

Fifty-one percent of the firms in the MBA report logged pretax net financial profits during the third quarter, down from 58% in the second quarter.

“Were it not for mortgage servicing, only about one in three companies would have been profitable,” Walsh said.


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