Despite strong loan origination in the fourth quarter, mortgage lenders slipped back into the red, losing money on every loan they produced, according to the Mortgage Bankers Association.
Independent mortgage bankers and bank mortgage subsidiaries lost $40 on a pretax basis on every loan they originated during the period. This ended
For the fourth quarter of 2023,
Higher production costs, particularly application-related expenses carried over from the previous quarter, were a key driver of the shift to losses, according to MBA.
However, lenders who generate larger volume benefitted from scale, as their fixed costs were spread over more volume. Thus they were able to generate an average production profit in the fourth quarter, Marina Walsh, the MBA's vice president of industry analysis, said in a press release.
IMBs swung from an 18-basis-point profit in Q3 to a 4-basis-point loss in Q4—though this was still an improvement from the 73-basis-point loss in Q4 2022.
Total loan production expenses — commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations — increased to $11,230 per loan compared with $10,716 in the third quarter.
While expenses rose, revenues declined. Lenders earned $11,190 per loan in the fourth quarter, a drop from $11,417 in Q3. Total production revenue, which includes fee income, net secondary marketing income and warehouse spread, decreased to 339 basis points from 341 basis points during the time frame.
Mortgage originators of all types
But the MBA report found average production volume to be $540 million per IMB in the fourth quarter, down from $542 million for the period ended Sept. 30, 2024.
The servicing business, on a net basis, made money for IMBs in the fourth quarter, $142 per loan, up from a third quarter loss of $25.
But servicing income—excluding changes in servicing rights value and hedging adjustments—declined from $93 per loan in Q3 to $84 in Q4.
"With the slowing in prepayments in the fourth quarter, net servicing financial income improved and helped the bottom line," Walsh said. "Across both production and servicing operations, 61% of mortgage companies in MBA's sample were profitable, compared to 71% in the previous quarter."
While mortgage lenders faced rising costs and shrinking profits, the servicing business helped offset some of the losses. However, with declining revenues and a tougher mortgage market, the industry remains in a challenging position heading into 2025.
