Per-loan losses lessen in Q1 despite soaring expenses

Mortgage bankers are recovering from steep losses to close last year, but soaring production costs are still depressing their bottom lines. 

Lenders reported a net loss of $1,972 per loan originated, or 68 basis points, in the first quarter, according to Thursday's Mortgage Bankers Association's Quarterly Mortgage Bankers Performance Report. That was an improvement from the $2,812 loss per loan in the fourth quarter of 2022, but far from the much smaller losses companies began to post last fall. 

"One silver lining from the first quarter is that production revenues improved by 40 basis points," said Marina Walsh, MBA vice president of industry analysis, in a press release. "However, costs continued to escalate with the further drop in volume and reached more than $13,000 per loan despite substantial personnel reductions."

The average pre-tax net production loss per loan hit a record 99 basis points in the fourth quarter. At the beginning of 2022, lenders were gaining 5 basis points per transaction. Across the industry, 32% of independent mortgage banks and depository home lending subsidiaries were profitable in the last quarter compared to 25% in the fourth quarter. Publicly traded giants earlier this month reported mixed results to begin the year.

Combined commissions, compensation and other expenses totaled $13,171 per loan by the end of March, a study-high according to the MBA. The loss deepened from the $12,450 charge per loan to lenders in the fourth quarter, despite widespread cost-cutting efforts.

The industry has shed approximately two-thirds of the jobs it added during the booming pandemic-era market, and layoff rounds in the first quarter brought the average production staff down 39 employees quarterly to 374 workers per firm by the end of March, the MBA said. 

Expenses dampened a sizable quarterly gain in production revenues to $11,199 per loan to begin the year, compared to a $9,637 mark at the end of December. Combined fee income, net secondary marketing income and warehouse spreads grew revenues from 317 basis points in the fourth quarter to 358 in the recent period.

The mix of fluctuating mortgage activity and rates hovering above 6% to close the first quarter also sent companies' average production volume quarterly down $38 million to $398 million per firm. Companies averaged 1,264 originations each between January and March, a 9% decline from the prior reporting period. 

Servicing delivered mixed results for firms in the first quarter, with companies recording $54 net income per loan up from $37 per loan in the fourth quarter, the MBA said. 

When accounting for combined servicing operation income, gains and losses, and proceeds from the bulk sales of mortgage servicing rights, businesses saw a slight decline, generating $102 per loan against $104 per loan quarter-over-quarter. The MSR market picked up in early April following banking turmoil that appears to have subsided.

Production losses have now slid for four consecutive quarters, alongside volume's nine-quarter slide since the ultra low-rate environment in 2020.