Independent Mortgage Banks Report Q2 Losses

An important segment of the lending market, independent mortgage banks (IMBs)—which includes mortgage subsidiaries of charted banks—reported a pre-tax net loss of $534 on each loan they originated during the second quarter of 2023, which is an improvement from the first quarter of 2023, when losses hit $1,972 per loan. 

This information comes by way of the Mortgage Bankers Association’s (MBA) newly released Quarterly Mortgage Bankers Performance Report. 

“After 11 consecutive quarters of increases, origination costs declined by over $2,000 per loan during the second quarter of 2023,” said Marina Walsh, CMB, MBA’s VP of Industry Analysis. “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.” 

Including both the production and servicing business lines, 58% of companies were profitable last quarter, an improvement from 32% in the first quarter of 2023 and 25% in the fourth quarter of 2022. 

Walsh added, “There were signs of improvement in the second quarter of 2023. 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.”

Key findings of the report, as highlighted by the MBA, include: 

  • The average pre-tax production loss was 18 basis points (bps) in the second quarter of 2023, compared to an average net production loss of 68 bps in the first quarter of 2023, and down from a loss of 5 basis points one year ago. The average quarterly pre-tax production profit, from the third quarter of 2008 to the most recent quarter, is 47 basis points. 
  • The average production volume was $502 million per company in the second quarter, up 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. 
  • Total production revenue (fee income, net secondary marketing income and warehouse spread) decreased to 328 bps in the second quarter, down from 358 bps in the first quarter. On a per-loan basis, production revenues decreased to $10,510 per loan in the second quarter, down from $11,199 per loan in the first quarter. 
  • The purchase share of total originations, by dollar volume, increased to a study high of 89% in the second quarter. For the mortgage industry as a whole, MBA estimates the purchase share was at 80% in the second quarter of 2023. 
  • The average loan balance for first mortgages increased to $343,386 in the second quarter, up from $329,159 in the first quarter. 
  • Total loan production expenses—commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations—decreased to $11,044 per loan in the second quarter, down from a study-high $13,171 per loan in the first quarter of 2023. From the third quarter of 2008 to last quarter, loan production expenses have averaged $7,236 per loan. 
  • The average number of production employees per company declined from 372 production employees in the first quarter of 2023 to 366 production employees in the second quarter of 2023 (on a repeater company basis). 
  • Servicing net financial income for the second quarter (without annualizing) was $94 per loan, up from $54 per loan in the first quarter. Servicing operating income, which excludes MSR amortization, gains/loss in the valuation of servicing rights net of hedging gains/losses, and gains/losses on the bulk sale of MSRs, was $105 per loan in the second quarter, up from $102 per loan in the first quarter. 
  • Including all business lines (both production and servicing), 58 percent of the firms in the study posted pre-tax net financial profits in the second quarter, up from 32 percent in the first quarter. 

To view the report in its entirety, click here. 

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