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The average retail mortgage lender lost $645 per loan in Q1 2024 — but that’s actually a good thing

Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a pretax net loss of $645 on each loan they originated in the first quarter of 2024 — a decrease from the average loss of $2,109 per loan in Q4 2023, according to the Mortgage Bankers Association’s (MBA) newest quarterly performance report.

“While the first quarter of 2024 marks the eighth consecutive quarter of net production losses, these losses were less severe than the previous two quarters,” Marina Walsh, the MBA’s vice president of industry analysis, said in a statement. “In basis points, production revenue rose above the historical average and production costs declined. This led to an improvement in the production bottom line by almost 50 basis points during the quarter.” 

Walsh added that, including both production and servicing business lines, 59% of mortgage companies were profitable in the first quarter. That’s the highest level in eight quarters and up from a share of 29% in Q4 2023.

The average pretax production loss was 25 basis points (bps) in the first quarter, an improvement on the 73-bps loss in the fourth quarter. It was also substantially better than the 58-bps loss in Q1 2023.

Improved financial performance for retail lenders coincides with a more stable secondary mortgage market, which has seen spreads narrow since they peaked in fall of 2023. Housing inventory has also climbed from the low poitns of last year, although it remains well below pre-pandemic levels.

The average production volume was $384 million per company in the first quarter, up from $359 million per company in the fourth quarter, MBA reported. The average company produced 1,193 loans in the first quarter, up from 1,170 loans in the fourth quarter.

Walsh’s analysis found that total production revenue increased to 371 bps in the first quarter, up from 334 bps in the fourth quarter. On a per-loan basis, production revenues increased to $11,947 per loan in Q1, up from $10,376 in Q4 2023.

Other production statistics of note:

The average loan balance for first mortgages increased to $345,761 in the first quarter, up from $336,757 in the fourth quarter.

Total loan production expenses — including commissions, compensation, occupancy, equipment and corporate allocations — decreased to 395 bps in Q1 2024, down from 407 basis points in Q4 2023. But per-loan costs increased to $12,593 in Q1, up from $12,485 in Q4. From the first quarter of 2008 through Q1 2024, loan production expenses have averaged $7,472 per loan.

Median productivity — measured by loans closed per retail or consumer-direct production employee — remained unchanged at 1.1 loans per employee in the first quarter.

Servicing net financial income for the first quarter (on a non-annualized basis) was $82 per loan, up from a loss of $24 per loan in the fourth quarter. Servicing operating income — which excludes mortgage servicing rights (MSR) amortization, gains and losses in the valuation of servicing rights net of hedging gains and losses, and gains and losses on the bulk sale of MSRs — was $93 per loan in the first quarter, down from $108 per loan in the fourth quarter.

The MBA on Monday released its latest forecast for the remainder of 2024. Chief economist Mike Fratantoni expects $1.8 trillion in origination volume this year, with mortgage rates expected to end the year at 6.5%.

Fratantoni expects a major rebound for the mortgage market over the next two years. His forecast calls for $2 trillion in origination volume in 2025 and $2.28 trillion in 2026. Mortgage rates should fall to 5.9% in 2025 and 5.7% in 2026, according to Fratantoni’s forecast.

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