Independent mortgage banks and lending subsidiaries of those institutions are reporting improving performance, but they still took a loss on each loan originated for a fifth consecutive quarter.
Mortgage banks reported a pretax net loss of $534 on originations in the second quarter, an improvement from the reported loss of $1,972 per loan in the first quarter and $2,812 on each loan they originated in the fourth quarter, according to data from the Mortgage Bankers Association trade group.
It's a much-needed positive sign for the lending industry. Lenders, like other business sectors, are grappling with rising costs as higher inflation eats into their bottom line. Mortgage banks lose money on a loan when the expenses to produce it generate more than the revenue. But those costs are coming down.
“Volume picked up during the spring homebuying season and additional personnel were shed," Marina Walsh, MBA’s vice president of industry analysis, said in a statement. "However, the substantial cost savings per loan was not enough to put the average net production income in the black.”
Expenses, including items such as commissions, compensation, occupancy and equipment, averaged $11,044 per loan in the second quarter, down from a high of $13,171 in the first quarter, according to the MBA.
Revenues decreased to $10,510 per loan in the second quarter, down from $11,199 in the first quarter.
The MBA attributed the second-quarter improvement in average loss to reducing expenses through extensive layoffs and increased loan production that supported spring homebuying.
Financial industry layoffs, which include mortgage banks as well as other financial services firms, totaled 41,565 through July, compared with 12,965 for the same period a year ago, according to global outplacement firm Challenger, Gray & Christmas. Meanwhile, financial industry businesses have announced only about 5,900 new hires year to date, compared with nearly 19,600 during the same period last year.
The average number of production employees per mortgage banking company declined from 372 in the first quarter to 366 in the second quarter, according to the MBA.
“After 11 consecutive quarters of increases [of loan costs], origination costs declined by over $2,000 per loan during the second quarter,” Walsh said.
Commercial and multifamily mortgage loan originations increased 23% in the second quarter from the first quarter but were still 53% lower than the second quarter last year, according to the MBA.
The average production volume of both residential and commercial loans was $502 million per company in the second quarter, up from $398 million per company in the first quarter, the MBA said. The volume by count per company averaged 1,553 loans in the second quarter, up from 1,264 loans in the first quarter.
“Additionally, the majority of mortgage companies in their quarterly survey managed to squeeze out an overall profit during one of the toughest times for the mortgage industry,” Walsh added.
Including both the production and servicing business lines, 58% of companies were profitable last quarter, an improvement from 32% in the first quarter and 25% in the fourth quarter.