The mortgage industry's comeback after years of economic challenges sputtered, as diminished loan volume and increased production costs made lending unprofitable at nonbanks in the first quarter.
Still, the industry managed to narrow losses compared to three months earlier but production ended up in the red again
The latest number was also up from the first quarter of each of the previous two years when the average losses totaled $645 in 2024 and $1,972 in 2023.
"Production profitability was close to break-even in the first quarter of 2025," said Marina Walsh, MBA vice president of industry analysis. "Production revenues increased at about the same pace as costs, which mitigated losses," she pointed out.
Per-loan losses came out to 7 basis points on average, compared to 4 bps in the fourth quarter of 2024. The historical average pre-tax profit per loan since 2008 is 40 basis points.
Production revenue, comprising fee income, net secondary market gains and warehouse spreads grew to $12,551 per loan between January and March, increasing 12.2% from $11,190 three months earlier. Revenues were equivalent to 373 basis points in the first quarter and 339 bps in the fourth.
Expenses offset rising revenue, rising 12% to $12,579 per loan from $11,230 quarter over quarter, which were equal to 381 and 344 basis points. Recent expenses are significantly above the historical post-2008 mean of $7,702 per loan.
The latest quarterly numbers were based on average origination volume of $488 million per lender, down from $540 million in the previous reporting period. Production on a per-company basis came out to a mean of 1,448 loans, 10% lower from fourth quarter's 1,609.
The numbers show many mortgage companies still need to look at belt tightening, particularly
"Accounting for both production and servicing operations combined, 58% of mortgage companies in MBA's sample are profitable, but that leaves 42% who are still not yet out of the woods," Walsh said.
By comparison in the fourth quarter, 61% of businesses were profitable.
How mortgage servicing performed in Q1 2024
As in the previous quarter,
Servicing net financial income over the recent quarter averaged $22 per loan, but the number was down from $142 in the prior three-month period. Operating income — excluding changes in servicing rights value and hedging adjustments — grew to $90 from $84.
The full picture in comparing companies by size continues to show that the smaller the business, the greater the loss. Lenders with less than $100 million in volume lost more than $1,000 per loan on average.
At the same time, companies originating mortgages with smaller average sizes also fared worse. Lenders whose mean balance was below $250,000 reported losing over $1,300 on each origination.
