Independent mortgage banks and mortgage subsidiaries of chartered banks reported a pre-tax net loss of $2,109 on each loan they originated in the fourth quarter of 2023, according to new data from the Mortgage Bankers Association (MBA). This represented an increase from the reported loss of $1,015 per loan in the third quarter.
The MBA reported that including all business lines (both production and servicing), 29% of the firms in its new data report posted pre-tax net financial profits in the fourth quarter, down from 51% in the third quarter. The average pre-tax production loss was 73 basis points (bps), compared to an average net production loss of 34 bps in the previous quarter and a loss of 99 basis points one year ago.
The average production volume was $359 million per company in the fourth quarter, down from $477 million per company in the third quarter. Total production revenue (fee income, net secondary marketing income and warehouse spread) increased to 334 bps in the fourth quarter, up slightly from 329 bps in the third quarter.
The average loan balance for first mortgages decreased to $336,757 in the fourth quarter, down from $341,708 in the third quarter. And total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to $12,485 per loan in the fourth quarter, up from $11,441 per loan in the third quarter of 2023.
“The fourth quarter of 2023 was about as challenging as it could get for mortgage lenders to generate a production profit,” said Marina Walsh, MBA’s vice president of industry analysis. “The fourth quarter is typically the slowest pace of purchase activity for the year. This year was exacerbated by the current lack of housing inventory and mortgage rates that increased to their highest levels of the year, keeping refinancings volumes low. These factors contributed to a ‘perfect storm’ that resulted in a decline in production volume for the quarter that reached the lowest level for this report since 2014.”
“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 added. “At the same time, productivity metrics deteriorated, suggesting that there may still be excess capacity even after substantial employee reductions over the past two years. 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.”
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