Mortgage Lenders Lost Money On Each Loan Originated In Q2 2022

Mortgage Lenders lost money on every loan originated for the first time since 2018 in Q2, according to the Mortgage Bankers Association’s (MBA) Quarterly Mortgage Bankers Performance Report.

Independent mortgage banks and mortgage subsidiaries of chartered banks lost an average of $82 on each loan they originated in the second quarter of 2022, down from gains of $223 per loan in Q1.

The average pre-tax production loss was 5 bps, a complete turnaround from Q1’s average net production profit of 5 bps.

Average production volume totaled $705 million per company, down from $808 million in Q1.

Only three other quarters in the survey’s history saw net production losses: Q1 2014, Q1 2018, and Q4 2018.

“The second quarter of 2022 did not yield the usual Spring seasonal pick-up in purchase activity, in an environment of higher mortgage rates, low housing inventory, and affordability challenges,”  said Marina Walsh, CMB, MBA’s Vice President of Industry Analysis.

“With lower volume, lower revenues, and higher costs relative to the first quarter, the average pre-tax net production income per loan reached its lowest level since the fourth quarter of 2018.”

Total loan production expenses (commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations) hit a study-high of $10,937 per loan. This is up from $10,637 in Q1, and significantly higher than average expenses between Q3 2008 and Q1 2021.

“Combining both production and servicing operations, only 57% of the companies in our report were profitable. Pulling out a profit in these difficult conditions is no easy feat,” Walsh said.

The industry is seeing layoffs in droves and lenders shutting down as homebuyer demand dwindles. Overall loan application volume dipped this week to its lowest level since 2000.

Independent lenders are especially vulnerable but account for most of the market right now.

“The nonbanks are poorly capitalized,” Nancy Wallace, chair of the real estate group at Berkeley Haas, the business school at the University of California, Berkeley, told Bloomberg.

“When the mortgage market tanks they are in trouble.”