The average IMB lost $1,972 per loan in the first quarter

Despite a marked improvement over the fourth quarter of 2022Independent Mortgage Banks (IMBs) and chartered bank mortgage subsidiaries still lost a mountain of money in the first quarter.

On average, IMBs reported a net loss of $1,972 on each loan originated from January to March, a 35% improvement over the reported loss of $2,812 per loan in the fourth quarter of 2022, according to the Mortgage Bankers Association (MBA).

A 68 basis point net production loss in the first quarter is a sobering reminder that conditions remain extraordinarily challenging for the industry, even as losses have narrowed from the record 99bp loss posted in the fourth quarter.

Graphic courtesy of the Mortgage Bankers Association

The industry has experienced four straight quarters of production losses and nine straight quarters of volume declines, according to Marina Walsh, MBA’s vice president of industry analysis.

Average production volume was $398 million per company in the first quarter, up from $436 million per company in the fourth quarter of 2022. Volume per company averaged 1,264 loans, a drop of 1,395 loans over the same period.

In total, including production and services business lines, 32% of companies were profitable in the first quarter, up from 25% in the last quarter of 2022.

Another positive for IMBs was the 40 bp improvement in production revenue in the first quarter compared to the previous quarter.

However, costs continued to rise with the further drop in volume and reached a study high of $13,171 per loan despite substantial staff reductions, Walsh said.

Loan production expenses averaged $7,172 per loan from the third quarter of 2008 through the last quarter of 2022. The average number of production employees per business also decreased to 374 between January and March from 413 in the prior quarter.

Operating income from services, which excludes MSR amortization, service rights valuation gains or losses net of hedging gains or losses, and MSR wholesale gains or losses, decreased slightly to $102 per loan in the first quarter from $104 in the prior quarter .

The sale of MSR does not directly impact Profits as an income stream, but converting MSRs to cash through sales agreements bolsters a lender’s overall cash flow and liquidity.

However, not all bad news. The MBA expects mortgage origination volume for one- to four-family homes to register $461 billion in the second quarter, up from $333 billion in the first quarter of 2023, according to its latest forecast.

The MBA also screened the 30 year fixed rate mortgage to a downward trend to an average of 6.2% in the second quarter, to finally decrease to 5.5% in the fourth quarter of 2023.

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