Independent mortgage banks suffer through horrid fourth quarter

Final quarter of 2022 sees largest production loss, highest total production expenses ever

The fourth quarter of 2022 was not kind to independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks, which reported a net loss of $2,812 on each loan they originated during the three-month period, according to the Mortgage Bankers Association (MBA).

Per the MBA’s Quarterly Mortgage Bankers Performance Report, that’s down from a loss of $624 per loan during Q3 2022 — a staggering jump of more than 350%.

The average pretax production loss was 99 basis points (bps) in the fourth quarter, compared to a loss of 20 bps in the prior quarter and a profit of 38 bps one year earlier. The Q4 loss represented a new record low. For context, the average pretax production profit from Q3 2008 through the end of last year was 50 bps, according the MBA’s data.

Additionally, it was the third straight quarter that average pretax production income was negative, said Marina Walsh, the MBA’s vice president of industry analysis.

“Fourth-quarter results were abysmal. Basis-point revenues dropped to levels not seen since the fourth quarter of 2011,” Walsh said. “Production costs reached their highest levels since the inception of MBA’s report and production volume has now declined for eight consecutive quarters.”

Average production volume was $436 million per company in Q4, down from $578 million in the prior quarter. Measured by loan count, the average volume per company was 1,395 loans, down from 1,819 in Q3.

Total loan production expenses grew from $11,016 per loan in the third quarter to $12,450 per loan in the fourth quarter — a new all-time high, as Walsh noted. Dating back to Q3 2008, average production expenses have been $7,068 per loan.

Meanwhile, total production revenue fell to 317 bps in the fourth quarter, down from 326 bps in the third quarter. Per loan production revenues dropped from $10,392 in Q3 to $9,637 in Q4.

Employment at IMBs has also suffered, with the average number of production employees per company down from 443 in Q3 to 390 in Q4.

“This has been a challenging time for mortgage originators, with cost-cutting measures, including layoffs, not being enough yet to turn the tide,” Walsh said. “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.”


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