MBA Report: IMBs Report 3Q Losses

Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net loss of $624 on each loan originated in the third quarter, the Mortgage Bankers Association reported Friday.

This loss is down from a reported loss of $82 per loan in the second quarter, according to the MBA Quarterly Mortgage Bankers Performance Report.

“The average pre-tax net production income per loan reached its lowest level since the inception of MBA’s report in 2008, which is sobering news given that the third quarter is historically the strongest quarter of the year,” said Marina Walsh, CMB, MBA Vice President of Industry Analysis. “The industry continues to struggle with a perfect storm of lower production volume and revenues and escalating production costs, which for the first time exceed $11,000 per loan.”

Walsh noted companies are responding to tough market conditions by reducing excess capacity, including staff. The report found production employees per firm is down 7 percent from the previous quarter and 19 percent from one year ago. “However, overall volume has dropped so swiftly that some companies are having difficulties adjusting staffing and other costs to match market conditions,” she said.

Walsh also observed mortgage servicing continues to be the silver lining in the current rate environment. “With prepayments and delinquencies low, mortgage servicing has been the difference for many companies between profitable or not. Roughly one in two companies generated a profit in the third quarter; but without mortgage servicing operations, only one in four companies would have been profitable,” she said. 

Walsh added October’s report on slower inflation and the subsequent drop in mortgage rates c”ould resuscitate purchase demand and ultimately provide some needed relief for the industry.”

Key report findings:

• Average pre-tax production loss fell to 20 basis points (bps) in the third quarter, down from an average net production loss of 5 bps in the second quarter and down from a gain of 89 basis points one year ago. The only other quarters in the survey’s history to record net production losses were: first quarter 2014 (8 basis points), first quarter 2018 (8 basis points), fourth quarter 2018 (11 basis points); and second quarter 2022 (5 basis points). The average quarterly pre-tax production profit, from third quarter 2008 to the most recent quarter, is 52 basis points.
• Average production volume fell to $578 million per company in the third quarter, down from $705 million per company in the second quarter. Volume by count per company averaged 1,819 loans in the third quarter, down from 2,139 loans in the second quarter.
• Total production revenue (fee income, net secondary marketing income and warehouse spread) decreased to 326 bps in the third quarter, down from 335 bps in the second quarter. On a per-loan basis, production revenues decreased to $10,392 per loan in the third quarter, down from $10,855 per loan in the second quarter.
• Net secondary marketing income decreased to 223 bps in the third quarter, down from 243 bps in the second quarter. On a per-loan basis, net secondary marketing income decreased to $7,165 per loan in the third quarter from $7,939 per loan in the second quarter.
• Purchase share of total originations, by dollar volume, increased to a study high of 86 percent in the third quarter from 81 percent in the second quarter. For the mortgage industry as a whole, MBA estimates purchase share at 81 percent in the third quarter.
• Average loan balance for first mortgages decreased to $335,940 in the third quarter, down from $337,130 in the second quarter.
• Average pull-through rate (loan closings to applications) increased to 77 percent in the third quarter, up from 75 percent in the second quarter.
• Total loan production expenses – commissions, compensation, occupancy, equipment and other production expenses and corporate allocations – increased to a study high $11,016 per loan in the third quarter, up from $10,937 per loan in the second quarter. From third quarter 2008 to last quarter, loan production expenses averaged $6,974 per loan.
• Personnel expenses averaged $7,325 per loan in the third quarter, down from $7,371 per loan in the second quarter.
• Servicing net financial income for the third quarter (without annualizing) fell to $102 per loan, down from $133 per loan in the second 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, fell to $95 per loan in the third quarter, down from $97 per loan in the second quarter.
• Including all business lines (both production and servicing), 46 percent of the firms in the study posted pre-tax net financial profits in the third quarter, down from 57 percent in the second quarter.

MBA’s Mortgage Bankers Performance Report series offers a variety of performance measures on the mortgage banking industry and is intended as a financial and operational benchmark for independent mortgage companies, bank subsidiaries and other non-depository institutions. Eighty-three percent of the 307 companies that reported production data for the third quarter were independent mortgage companies; the remaining 17 percent were subsidiaries and other non-depository institutions.

MBA produces five Mortgage Bankers Performance Report publications per year: four quarterly reports and one annual report. The reports can also be purchased on MBA’s website by visiting www.mba.org/PerformanceReport.