Q4 2023 ‘about as challenging as it could get’ for lenders to generate profits

Latest quarterly performance report from MBA reveals another frustrating period for IMBs

The fourth quarter of 2023 was another period of production losses for independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks, according to recent numbers from the Mortgage Bankers Association (MBA).

The trade group reported a pre-tax net loss of $2,109 for each loan originated by IMBs during the last three months of last year, up from the net loss of $1,015 per loan one quarter prior.

Myriad factors coalesced into a “perfect storm” that led to the lowest level of production volume in a quarter since the MBA began compiling its quarterly report, said Marina Walsh, CMB, MBA’s vice president of industry analysis.

“The fourth quarter of 2023 was about as challenging as it could get for mortgage lenders to generate a production profit,” Walsh said. “The fourth quarter is typically the slowest pace of purchase activity for the year. This year was exacerbated by the current lack of housing inventory and mortgage rates that increased to their highest levels of the year, keeping refinancings volumes low.”

Average production volume in the fourth quarter of 2023 was $359 million per company, down from $477 million one quarter prior. Companies averaged 1,170 loans in Q4, down from 1,497 in Q3.

The average pre-tax production loss was 73 basis points in the fourth quarter — more than double the loss of 34 bps realized in the third quarter, but down from the 99-bps loss in the fourth quarter of 2022. For context, the average quarterly pre-tax production profit from the fourth quarter of 2008 to the most recent quarter is 43 basis points.

Total production revenues did grow to 334 bps in the fourth quarter from 329 bps in the third. But on a per-loan basis, production revenues receded to $10,376 per loan, down from $10,426 one quarter prior. Meanwhile, total production expenses increased from $11,441 per loan in the third to $12,485 per loan in the fourth quarter, leading to the aforementioned net loss.

“While production revenues were relatively strong and even increased by five basis points, expenses were up more than $1,000 per loan from the previous quarter and the second-highest level ever reported in our series, indicating that lenders were unable to sufficiently adjust resources to align with fluctuating rates and volumes. At the same time, productivity metrics deteriorated, suggesting that there may still be excess capacity even after substantial employee reductions over the past two years.”

“Despite tough market conditions, some companies have been able to weather seven consecutive quarters of net production losses through cash reserves or infusions and strong servicing cash flows.”

Including all business lines (including production and servicing), 29% of the firms evaluated in the MBA’s report saw pre-tax net profits in the closing quarter of 2023. That’s down from 51% quarter over quarter.


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