IMBs see improvement in production losses in Q1

Losses in the production of independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks showed improvement in the first quarter.

IMBs registered a net loss of $1,972 on each loan they originated in Q1 – an improvement from the reported loss of $2,812 per loan in the previous quarter, according to the Mortgage Bankers Association’s newly released report.

The average production volume was $398 million per company, down from $436 million. The volume by count per company averaged 1,264 loans in the first quarter, down from 1,395 loans in the fourth quarter.

“A net production loss of 68 basis points in the first quarter of the year is an improvement over the record 99-basis-point loss reported in the fourth quarter of 2022,” said Marina Walsh, vice president of industry analysis at MBA. “Conditions continue to be challenging for the industry, with now four consecutive quarters of production losses and nine consecutive quarters of volume declines.”

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Total production revenue – which includes fee income, net secondary marketing income, and warehouse spread – jumped 41 basis points quarter over quarter to 358bps in the first quarter. On a per-loan basis, production revenues rose from $9,637 to $11,199 per loan.

“One silver lining from the first quarter is that production revenues improved by 40 basis points,” Walsh said. “However, costs continued to escalate with the further drop in volume and reached more than $13,000 per loan despite substantial personnel reductions.”

Walsh highlighted that 32% of companies in both production and servicing business lines were profitable last quarter, up from 25% in the prior quarter.

Other key findings of MBA’s report were:

• The purchase share of total originations by dollar volume remained unchanged at a study high of 88% in the first quarter. MBA estimates the purchase share for the mortgage industry was at 80% in the first quarter of 2023.
• The average loan balance for first mortgages increased to $329,159 in the first quarter, up from $322,225 in the fourth quarter.
• Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to a study-high of $13,171 per loan in the first quarter, up from $12,450 per loan in the fourth quarter of 2022. From the third quarter of 2008 to last quarter, loan production expenses have averaged $7,172 per loan.
• The average number of production employees per company declined from 413 production employees in the fourth quarter of 2022 to 374 production employees in the first quarter of 2023 (on a repeater company basis).
• Servicing net financial income for the first quarter (without annualizing) was $54 per loan, up from $37 per loan in the fourth 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 $102 per loan in the first quarter, down slightly from $104 per loan in the fourth quarter.

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