The average IMB lost $1,015 per loan in Q3, nearly doubling Q2 losses: MBA

Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported an average net loss of $1,015 on each loan they originated in the third quarter of 2023. That’s nearly double the reported loss of $534 per loan in the previous quarter, according to the Mortgage Bankers Association (MBA).

The average pre-tax production loss was 34 basis points (bps) in Q3. A decline in originations volume worsened net-production losses in Q3 compared to Q2, the MBA noted. 

“While production revenues stayed relatively flat, per-loan production costs reverted to the third-highest level in the history of MBA’s survey, which reversed a portion of the cost improvements made in the second quarter,” Marina Walsh, MBA’s vice president of industry analysis, said in a news release.

Net production has been in the red for six consecutive quarters, but a turnaround is unlikely until Q2 2024, the MBA projected.

Amid a declining origination environment, mortgage servicing remained a silver lining.

Combining both the production and servicing business lines, 51% of mortgage companies stayed profitable in the third quarter of 2023, down from 58% the previous quarter. 

“Were it not for mortgage servicing, only about one in three companies would have been profitable,” Walsh said.

Average production volume was $477 million per company in the third quarter, down from $502 million in the second quarter. Meanwhile, volume by count per company averaged 1,497 loans in Q3, down from 1,553 loans in Q2.

Total production revenue – including fee income, net secondary marketing income and warehouse spread – increased to 329 bps in the third quarter, up slightly from 328 bps in the quarter prior. On a per-loan basis, production revenue decreased to $10,426 per loan in the third quarter, down from $10,510 per loan in the second quarter.

Total loan production expenses – such as commissions, compensation, occupancy, equipment and corporate allocations – rose to $11,441 per loan in Q3, up slightly from $11,044 per loan in the previous quarter. Loan production expenses averaged around $7,305 per loan.

Servicing operating income – which excludes mortgage servicing rights (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 $104 per loan in Q3, the MBA reported. That’s down from $105 per loan in Q2.

The sale of MSRs does not directly impact earnings as a revenue stream, but the conversion of MSRs into cash via sales deals bolsters a lender’s cash flow and overall liquidity.

The MBA expects mortgage origination volume for one- to four-family homes to post $399 billion in Q4, down from $444 billion in Q3 2023, according to its latest forecast.

The trade group also projected the 30-year fixed mortgage rate to average around 7.2% in 2023 before falling to 6.1% in 2024.

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