Lenders lost $2,812 per loan as business dropped off faster than they could trim expenses and production costs hit a record-high $12,450 per loan, a Mortgage Bankers Association survey found.

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Three out of four independent mortgage banks lost money in the last three months of 2022 as their business dropped off faster than they were able to trim expenses, resulting in an average loss of $2,812 per loan.

That’s according to a survey released Friday by the Mortgage Bankers Association (MBA), which found production expenses at independent mortgage banks and mortgage subsidiaries of chartered banks climbed to $12,450 per loan, a record high in surveys going back to 2008.

Marina Walsh

“This has been a challenging time for mortgage originators, with cost-cutting measures, including layoffs, not being enough yet to turn the tide,” said MBA analyst Marina Walsh in a statement.

Irvine, California-based loanDepot ended the year with 5,200 employees, about 6,100 fewer than the 11,300 with which it started. The nation’s biggest lenders — Rocket Cos. and United Wholesale Mortgage — cut a combined 9,500 positions in 2022 through attrition and voluntary buyouts.

Loan servicing was a bright spot for some lenders, who also earn fees for collecting payments on the loans they originate when they retain the mortgage servicing rights (MSRs). The fees are paid by investors who buy the loans when they’re packaged into securities.

Mortgage servicing rights (MSRs) can increase in value when interest rates rise since borrowers are less likely to refinance with another lender. But most of last year’s rise in interest rates took place during the first three quarters, with rates peaking in early October.

As a result, MBA researchers found that servicing net financial income dropped from $102 per loan in the third quarter to $37 per loan during the final three months of 2022.

Servicing operating income — which excludes factors like MSR amortization and gains and losses in the valuation of servicing rights — hit $104 per loan in the fourth quarter, up from $95.

“Even when all business lines are considered — both mortgage production and mortgage servicing — only one in four companies were profitable in the fourth quarter of 2022,” said Walsh, the MBA’s vice president for industry analysis.

Rising mortgage rates have brought mortgage refinancing to a virtual standstill. Since it’s usually less work to refinance an existing mortgage than to provide a purchase loan to a homebuyer, refinancing tends to be more profitable.

When the Federal Reserve pulled out the stops to bring mortgage rates to record lows during the pandemic, millions of homeowners refinanced, and the MBA’s quarterly Mortgage Bankers Performance Reports show lenders enjoyed a two-year run of above-average profitability through most of 2021.

At the height of the refinancing boom, lenders surveyed by the MBA made an average profit of $4,202 on each loan they originated in 2020, up from $1,470 per loan in 2019. By the tail end of the boom in 2021, lenders reported a net gain of $2,594 per loan during the third quarter and $1,099 per loan during the fourth quarter.

In a Feb. 21 forecast, MBA economists said they expect 30-year fixed mortgage rates to decline by a full percentage point this year to an average of 5.3 percent by the fourth quarter, and for lending to start picking up in the second quarter.

Mortgage lending expected to bottom this year

Source: MBA Mortgage Finance Forecast, Feb. 21, 2023 

Even if lending picks up, MBA forecasters predict mortgage originations will fall 17 percent this year to $1.87 trillion, with refinancing volume dropping 33 percent to $449 billion and purchase lending falling by 10 percent to $1.42 trillion.

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Email Matt Carter

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