The bad times
Independent mortgage bankers and bank mortgage subsidiaries lost $2,109 per loan produced in the period ended Dec. 31, driven by an increase in related expenses. It makes seven consecutive quarters where the industry as a whole lost money on the originations business.
This compares with a loss of $1,015 for the third quarter and
A "perfect storm" of a lack of inventory for sale held back purchases in what is typically the slowest quarter of the year anyhow, combined with rising interest rates that also held down refinance volume, kept origination activity at its lowest level since 2014, explained Marina Walsh, vice president of industry analysis, in a press release.
"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," Walsh said. "At the same time, productivity metrics deteriorated, suggesting that there
Median productivity, loans closed per retail or consumer direct production employee, decreased to 1.1 loans in the fourth quarter, down from 1.3 loans for the period ended Sept. 30, 2023.
With reports from earlier this week finding that
But buyer costs also remain elevated, creating a potential drag on the market.
A report from Boston Consulting Group, noted that gain on sale margins for a group of four banks and six nonbanks, all publicly traded, was down at nine of them versus the third quarter, the only exception being PNC;
On a year-over-year basis, Rithm was 57 basis points lower.
Expenses at the independent mortgage banker peer group (the BCG report looks at a total of eight), were down 20%-to-30% for the period, showing that at least at the large publicly traded companies, the cost cutting initiatives have paid off, BCG said.
But the MBA found across the industry that, including production and servicing, just 29% of companies participating in its study had pretax net financial profits in the fourth quarter, down from 51% three months prior.
As measured by basis points, because of lower volume pretax production losses actually improved compared with the prior year to an average of 73 basis points in the fourth quarter from a loss of 99 basis points. In the third quarter, the average loss was 34 basis points.
When taking into account items including fee income, net secondary marketing income and warehouse spread, total production revenue increased to 334 basis points in the fourth quarter, up slightly from 329 basis points in the third quarter, although as measured by dollars, it was $50 per loan lower to an average of $10,376.
Meanwhile, loan production expenses — including commissions, compensation, occupancy, equipment and more — averaged $12,485 per loan for the period, up from $11,441 for the prior quarter. This is well above the historical average of $7,389 per loan covering a period starting with the fourth quarter of 2008 to the last three months.
Lenders also had a rough quarter when it came to gaining income from their servicing portfolio with net financial income (without annualizing) of a $24 per loan loss, down from profits of $90 per loan in the third quarter.
Servicing operating income, which excludes amortization, gains/loss in the valuation of servicing rights net of hedging gains and losses, and gains and losses from bulk sales, was $108 per loan in the fourth quarter, up from $104 per loan in the third quarter.
"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," Walsh said.
