IMBs Report Net Production Losses in the Third Quarter of 2023
November 14, 2023
WASHINGTON, D.C. (November 14, 2023) — Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a pre-tax net loss of $1,015 on each loan they originated in the third quarter of 2023, an increase from the reported loss of $534 per loan in the second quarter of 2023, according to the Mortgage Bankers Association’s (MBA) newly released Quarterly Mortgage Bankers Performance Report.
“A decline in originations volume worsened net production losses in the third quarter of 2023,” said Marina Walsh, CMB, MBA’s Vice President of Industry Analysis. “While production revenues stayed relatively flat, per-loan production costs reverted to the third-highest level in the history of MBA’s survey, which reversed a portion of the cost improvements made in the second quarter.”
Added Walsh, “Net production income has been in the red for six consecutive quarters. MBA forecasts lower industry volume over the next two quarters compared to last quarter, which means a turnaround is unlikely until the second quarter of 2024. One silver lining is that mortgage servicing continues to be a bright spot for many companies. Combining both the production and servicing business lines, roughly half of mortgage companies stayed profitable in the third quarter of 2023. Were it not for mortgage servicing, only about one in three companies would have been profitable.”
Key Findings of MBA’s Third-Quarter 2023 Quarterly Mortgage Bankers Performance Report include:
- Including all business lines (both production and servicing), 51 percent of the firms in the study posted pre-tax net financial profits in the third quarter, down from 58 percent in the second quarter.
- The average pre-tax production loss was 34 basis points (bps) in the third quarter of 2023, compared to an average net production loss of 18 bps in the second quarter of 2023, and a loss of 20 basis points one year ago. The average quarterly pre-tax production profit, from the third quarter of 2008 to the most recent quarter, is 45 basis points.
- The average production volume was $477 million per company in the third quarter, down from $502 million per company in the second quarter. The volume by count per company averaged 1,497 loans in the third quarter, down from 1,553 loans in the second quarter.
- Total production revenue (fee income, net secondary marketing income and warehouse spread) increased to 329 bps in the third quarter, up slightly from 328 bps in the second quarter. On a per-loan basis, production revenues decreased to $10,426 per loan in the third quarter, down from $10,510 per loan in the second quarter.
- The purchase share of total originations, by dollar volume, was constant at 89 percent. For the mortgage industry as a whole, MBA estimates the purchase share was at 82 percent in the third quarter of 2023.
- The average loan balance for first mortgages decreased to $341,708 in the third quarter, down from $343,386 in the second quarter.
- Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to $11,441 per loan in the third quarter, up from $11,044 per loan in the second quarter of 2023. From the third quarter of 2008 to last quarter, loan production expenses have averaged $7,305 per loan.
- Servicing net financial income for the third quarter (without annualizing) was $90 per loan, down from $94 per loan in the second 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 $104 per loan in the third quarter, down from $105 per loan in the second quarter.
MBA's Mortgage Bankers Performance Report series offers a variety of other performance measures on the mortgage banking industry including revenue and cost breakouts, productivity, product mixes for originations and servicing volume, and pull-through rates. MBA's Mortgage Bankers Performance Report is intended as a financial and operational benchmark for independent mortgage companies, bank subsidiaries and other non-depository institutions. Eighty-two percent of the 348 companies that reported production data for the third quarter of 2023 were independent mortgage companies, and the remaining 18 percent were subsidiaries and other non-depository institutions.
There are five Mortgage Bankers Performance Report publications per year: four quarterly reports and one annual report. Media wishing to view a copy of either report should contact Falen Taylor at (202) 557-2771 or [email protected]. To purchase or subscribe to the publications, call (202) 557-2879. The reports can also be purchased on MBA's website by visiting www.mba.org/PerformanceReport.