Nonbank mortgage profits rebound in Q2, but still in the red

Thanks in part to the spring homebuying season, mortgage bankers saw the amount made on a loan drastically rebound in the second quarter, though the sum remained in the red.

Lenders reported a net loss of $534 on each loan they originated, or 18 basis points, according to a Mortgage Bankers Association's Quarterly Mortgage Bankers Performance Report. The results were a notable improvement from the loss of $1,972 per loan in the first quarter of 2023, and much better than the $2,812 loss per loan in the fourth quarter of 2022.

"After 11 consecutive quarters of increases, origination costs declined by over $2,000 per loan during the second quarter of 2023," said Marina Walsh, MBA vice president of industry analysis, in a statement Thursday. "Volume picked up during the spring homebuying season and additional personnel were shed. However, the substantial cost savings per loan was not enough to put the average net production income in the black."

Across the industry, 48% of staffers in either the production or servicing business were profitable last quarter, up from the 32% in the first quarter. Earnings of publicly traded mortgage companies revealed that most were also rebounding from losses, and some managed to post a profit.

Average production volume came in at $502 million per company in the second quarter, an increase from $398 million per company in the first quarter. The volume by count per company averaged 1,553 loans in the second quarter, up from 1,264 loans in the first quarter, the MBA's report said.

Total loan production expenses, which encompasses things like commission and compensation, decreased to $11,044 per loan in the second quarter, dropping from a study-high $13,171 per loan the prior quarter. From 2008 to the second quarter of 2023, expenses have averaged $7,236 per loan, the trade group said in its report.

Regarding rightsizing measures, the number of production employees per company declined on average by about six employees to 366. Following drastic headcount reductions in previous quarters, some industry stakeholders say further layoffs could destabilize mortgage shops, as lenders have started to cut into their core talent.

Meanwhile, servicing net financial income grew to $94 per loan, up from $54 per loan in the first quarter. Servicing operating income, which excludes MSR amortization, was $105 per loan in the second quarter, up from $102 per loan in the first quarter.

"There were signs of improvement in the second quarter of 2023," added Walsh. "Production losses were less severe than the previous two quarters and net servicing financial income was strong. Additionally, the majority of mortgage companies in our survey managed to squeeze out an overall profit during one of the toughest times for the mortgage industry."