Ouch. 2022 was not a good year, in fact, it was a bad year for lenders as the average loan was a money loser, according to a new report from the Mortgage Bankers Association.
- Independent mortgage banks and mortgage subsidiaries of chartered banks lost an average of $301 on each loan they originated in 2022, down from an average profit of $2,339 per loan in 2021
Analysis. Marina Walsh, MBA’s Vice President of Industry Analysis, “For the first time since the inception of MBA’s report in 2008, net production income was in the red in 2022, with losses averaging 13 basis points. The rapid rise in mortgage rates over a relatively short period of time, combined with extremely low housing inventory and affordability challenges, meant that both purchase and refinance volume plummeted,”
Too Quick. Walsh notes that skyrocketing rates caused demand to hit a brick wall and most mortgage companies, which had expanded drastically in the past two years, couldn’t adjust fast enough. “Production revenues declined in 2022, but the bigger story was that production expenses ballooned to a study high of $10,624 per loan. Companies could not adjust their capacity fast enough. The number of production employees declined, but not at the same pace as origination volume. As a result, productivity in 2022 fell to a low of 1.5 closed loans a month per production employee.”
- REVENUE: On a per-loan basis, revenue fell to $10,322 per loan in 2022, down from $11,003 in 2021.
- EXPENSES: Total loan production expenses jumped to $10,624 per loan in 2022, up from $8,664 in 2021.
Almost Half. Average production volume was $2.6 billion (8,371 loans) per company in 2022, down from $4.9 billion (16,590 loans) per company in 2021.
Not Everything Was Down. The average loan balance for first mortgages reached an all-time high of $323,780 in 2022, up from $298,324 in 2022. This is the largest single-year increase in the history of the report.
BOTTOM LINE: Reminds me of the old joke. “We might be losing money on each sale, but we are making it up in volume.” A lot of lenders accepted losses last year hoping that the spike in rates would reverse soon and volume would pick back up. However, over a year into the Fed hiking cycle with a 9th hike on the horizon a lot of mortgage companies are realizing a quick return to boom times is unlikely. This means a lot of mortgage companies are either going to have to raise rates and fees to stabilize revenue or they might just shutter the biz altogether. A lot more disruptions in the mortgage business are likely in 2023.