Marina Walsh, vice president of industry analysis for the Mortgage Bankers Association’s research and economics division, said: “If we were measuring transaction volume across the industry in units of units, 2023 would be the last year we’ve been tracking since 1999. The lowest level since unit to dollar trading volume.” told wealth. “If you look back over a period of more than 25 years, it’s absolutely the lowest we’ve seen in terms of unit volume.”
The Mortgage Bankers Association had forecast mortgage originations of $855 billion in the first two quarters of 2023, but they lost $59 billion in loans as mortgage applications continued to decline.
In fact, independent mortgage banks and other mortgage affiliates reported net losses of $534 per mortgage in the second quarter of 2023, according to data provided by the Mortgage Bankers Association. It was the bank’s fifth consecutive quarter of losses on mortgages.
Factors challenging the mortgage industry include soaring mortgage rates, an undersupply of housing and low consumer confidence. These have “crushed the mortgage industry over the past two years,” said John Paasonen, co-founder and chief executive of digital mortgage platform Maxwell. wealth.
“The drastic change in interest rates in a very short period of time has driven [mortgage origination] Volumes are down, but on top of that, we have a housing inventory crisis,” Walsh agreed. “
When the cost of making a loan is higher than the revenue it generates, the lender loses out on the loan. In response to these losses, lenders began laying off staff and lowering their origination costs.
“Over the past 12 months, mortgage lenders have begun to significantly adjust their cost base through layoffs and supplier negotiations, but there is still not enough volume in the market to offset these costs,” Paasonen explained.
For reference, the cost of originating a mortgage loan is about 0.5% to 1% of the total loan amount. According to a Freddie Mac study, the average cost of originating a loan in 2019 was about $9,300. But loan production expenses, including personnel and equipment, totaled more than $11,000 per loan in the second quarter of 2023, according to data provided by the Mortgage Bankers Association. However, this was down from $13,171 in the first quarter.
Another factor weighing on mortgage origination volumes is a lack of refinancing, which has “almost disappeared,” he added. More than 60 percent of homeowners have mortgage rates below 4 percent, “so the refinancing boom is unlikely to happen again for many years.” move.
While mortgage lenders do continue to report losses, they have improved over the past two quarters. In the first quarter of 2023, reported losses per loan were $1,972, compared with $2,812 per loan originating in the fourth quarter of 2022, according to the Mortgage Bankers Association. In the second quarter of 2023, the net loss per loan was $534.
“You never want to see a loss,” Walsh said. “But in terms of the fourth quarter of 2022 and the first quarter of 2023, the situation has improved.”
Experts say the data could suggest that the mortgage industry’s losses are temporary.
“Difficult times are an opportunity for solvent businesses to expand their market share, and the lending industry is no exception,” said Erin Sykes, chief economist at residential and commercial brokerage Nest Seekers International. wealth. “These mortgage bankers believe that our current challenges won’t last forever, so they’re opting to take short-term losses in hopes of maintaining business momentum and remaining relevant through the downturn.”
In addition, mortgage lenders also service loans, which can be profitable even if loans are expensive to originate. In fact, about 58% of mortgage lenders are profitable, in terms of both production and service businesses, Walsh said.
“On the service side of the business, we have an all-time low delinquency rate, so the cash flow is on the service side,” she said. “In some parts of the country, there are natural disasters that increase the cost of services because they deal with borrowers who are affected by natural disasters, but overall the services are generally doing well.”