Independent mortgage banks (IMB) and mortgage subsidiaries of chartered banks received a disappointing sales report card for 2022, which was led by a rapid rise in mortgage rates, low housing inventory and affordability challenges.
These companies reported a net loss of $301 on each loan originated in 2022, down from an average profit of $2,339 per loan in 2021, according to the Mortgage Bankers Association (MBA). This is the first time the net production income for IMBs has been in the red since the MBA began releasing the report in 2008.
Last year, average production volume was $2.6 billion per company, or about 8,371 loans, down from $4.9 billion, or 16,590 loans per company, in 2021.
“The stellar profits of the previous two years dissipated because of the confluence of declining volume, lower revenues, and higher costs per loan,” Marina Walsh, MBA’s vice president of industry analysis.
Total production revenues – which includes fee income, net secondary marking income and warehouse spread – were 333 basis points in 2022, down from 382 basis points in 2021. On a per-loan basis, production revenues were $10,322 per loan in 2022, down from $11,003 per loan in 2021.
While IMBs’ production revenues declined in 2022, the bigger story is that production expenses – including commissions and compensation – ballooned to a study high of $10,624 per loan.
Part of that was due to the number of production employees, which declined, but not at the same pace as origination volume, Walsh explained.
“Companies couldn’t adjust their capacity fast enough. As a result, productivity in 2022 fell to a low of 1.5 closed loans a month per production employee,” Walsh said.
For the entire mortgage industry, the MBA estimates the refinancing share last year decreased to 30%, down from 57% in 2021.
The servicing side of the business, however, was the silver lining in a margin-strapped environment.
Net servicing financial income, which includes net servicing operational income, mortgage servicing right (MSR) amortization, and gains and losses on MSR valuations, was at a gain of $586 per loan in 2022, up from a gain of $261 per loan in 2021.
Higher loan balances pushed per-loan servicing fees higher; servicing expenses dropped as serious delinquencies fell; and valuation mark-ups on mortgage servicing rights and slower prepayment activity contributed to servicing profitability, according to the MBA.
The gains on the servicing side of the business, however, were not enough to offset the substantial production losses.
Including both servicing and production operations combined, only 32% of companies were profitable in 2022, down from 98% just two years prior.
“There is no denying the very difficult circumstances in which mortgage companies are still operating today. MBA’s forecast calls for mortgage volume to decline again in 2023 before an expected rebound in 2024 and 2025,” Walsh said.
