IMB Losses Improved In Q1 2024
The first quarter of 2024 brought a significant profitability upswing for independent mortgage banks as production losses simmered down from previous quarters.
According to data from the Mortgage Bankers Association, IMBs and mortgage subsidiaries of chartered banks experienced a significant decrease in pretax net loss per loan in Q1 compared to the previous quarter.
The average loss per loan dropped to $645 from Q4 2023’s astonishing $2,109, one the highest levels in the survey’s history.
Marina Walsh, MBA’s vice president of industry analysis, noted that although this marks the eighth consecutive quarter of net production losses, they were less severe than before.
“In basis points, production revenue rose above the historical average, and production costs declined. This led to an improvement in the production bottom line by almost 50 basis points during the quarter,” she said.
Factors contributing to this improvement include a rise in production revenue above historical averages and a decrease in production costs. Rates for the most part stayed below 7% in Q1, leading some buyers to jump into a purchase before they could inflate further. Inventory has spiked since the beginning of the year, though it remains below typical levels.
Walsh highlighted that 59% of mortgage companies were profitable in Q1, the highest level in eight quarters.
Retail lenders’ improved financial performance aligns with a more stable secondary mortgage market and an increase in housing inventory.
The average production volume per company and the number of loans produced increased in Q1 compared to Q4 2023. Total production revenue and production revenue per loan also saw increases during this period.
By dollar volume, purchases accounted for 85% of total originations. MBA estimates the purchase share across the industry as a whole was 77%.
Meanwhile, the average loan balance for first mortgages increased to $345,761, up from $336,757 in the fourth quarter.
It’s unclear if this positive trend will continue, however. The GSEs now predict rates will remain around 7% moving forward, leading to a slowdown in housing activity through year-end.
“Given ongoing supply constraints and recent indications that the labor market may be weakening, a downward movement in mortgage rates appears to be the likeliest lever to achieve an improvement in affordability,” Doug Duncan, Fannie Mae senior vice president and chief economist, commented.
Other key findings include:
- The average pre-tax production loss was 25 bps in Q1 2024, compared to an average net production loss of 73 bps in the fourth quarter of 2023, and a loss of 68 bps YOY. The average quarterly pre-tax production profit, from the third quarter of 2008 to the most recent quarter, is 42 basis points.
- The average production volume was $384 million per company, up from $359 million per company in the fourth quarter. The volume by count per company averaged 1,193 loans in the first quarter, up from 1,170 loans in Q4.
- Total production revenue (fee income, net secondary marketing income, and warehouse spread) increased to 371 bps in the first quarter, up from 334 bps in the fourth quarter. Average quarterly production revenue, from the third quarter of 2008 to the most recent quarter, is 347 basis points. On a per-loan basis, production revenues increased to $11,947 per loan in the first quarter, up from $10,376 per loan in the fourth quarter.
- Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – decreased to 395 basis points in the first quarter of 2024 from 407 basis points in the fourth quarter of 2023. However, per-loan costs increased to $12,593 per loan in the first quarter, up from $12,485 per loan in the fourth quarter of 2023. From the first quarter of 2008 to last quarter, loan production expenses have averaged $7,472 per loan.
- Median productivity – measured as loans closed per retail/consumer direct production employee – remained unchanged at 1.1 loans per employee in the first quarter.
- Servicing net financial income for the first quarter (without annualizing) was $82 per loan, up from a negative $24 per loan in the fourth 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, was $93 per loan in the first quarter, down from $108 per loan in the fourth quarter.
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