The average IMB lost $1,015 per loan in Q3, nearly doubling Q2 losses: MBA

MBA forecasts more red ink across IMBs as it expects continued lower industry volume over the next two quarters

Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported an average net loss of $1,015 on each loan they originated in the third quarter of 2023. That’s nearly double the reported loss of $534 per loan in the previous quarter, according to the Mortgage Bankers Association (MBA).

The average pre-tax production loss was 34 basis points (bps) in Q3. A decline in originations volume worsened net-production losses in Q3 compared to Q2, the MBA noted. 

“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,” Marina Walsh, MBA’s vice president of industry analysis, said in a news release.

Net production has been in the red for six consecutive quarters, but a turnaround is unlikely until Q2 2024, the MBA projected.

Amid a declining origination environment, mortgage servicing remained a silver lining.

Combining both the production and servicing business lines, 51% of mortgage companies stayed profitable in the third quarter of 2023, down from 58% the previous quarter. 

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

Average production volume was $477 million per company in the third quarter, down from $502 million in the second quarter. Meanwhile, volume by count per company averaged 1,497 loans in Q3, down from 1,553 loans in Q2.

Total production revenue – including fee income, net secondary marketing income and warehouse spread – increased to 329 bps in the third quarter, up slightly from 328 bps in the quarter prior. On a per-loan basis, production revenue decreased to $10,426 per loan in the third quarter, down from $10,510 per loan in the second quarter.

Total loan production expenses – such as commissions, compensation, occupancy, equipment and corporate allocations – rose to $11,441 per loan in Q3, up slightly from $11,044 per loan in the previous quarter. Loan production expenses averaged around $7,305 per loan.

Servicing operating income – which excludes mortgage servicing rights (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 $104 per loan in Q3, the MBA reported. That’s down from $105 per loan in Q2.

The sale of MSRs does not directly impact earnings as a revenue stream, but the conversion of MSRs into cash via sales deals bolsters a lender’s cash flow and overall liquidity.

The MBA expects mortgage origination volume for one- to four-family homes to post $399 billion in Q4, down from $444 billion in Q3 2023, according to its latest forecast.

The trade group also projected the 30-year fixed mortgage rate to average around 7.2% in 2023 before falling to 6.1% in 2024.

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