Expenses rise, squeezing mortgage industry profits
Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks recorded a pre-tax net loss of $40 per loan in the fourth quarter of 2024, a sharp decline from the $701 per-loan profit reported in the third quarter, according to the Mortgage Bankers Association’s (MBA) latest Quarterly Mortgage Bankers Performance Report.
“Net production losses resumed in the fourth quarter of 2024 after two consecutive quarters of modest gains,” said Marina Walsh, MBA’s vice president of industry analysis. “This decrease marks the ninth quarter of net production losses in the past three years, albeit a much smaller loss compared to the fourth quarters of 2022 and 2023.”
The report indicated that while production revenues and volume remained relatively steady from the third quarter of 2024, average production expenses increased. Walsh attributed this rise to costs associated with a surge in applications from the prior quarter. Larger-volume lenders were able to offset expenses due to economies of scale, while lower-volume lenders faced difficulties breaking even.
Total production revenue, which includes fee income, net secondary marketing income, and warehouse spread, declined slightly to 339 basis points in the fourth quarter, down from 341 basis points in the third quarter. On a per-loan basis, production revenue fell to $11,190 from $11,417 in the previous quarter.
Loan production expenses, including commissions, compensation, occupancy, equipment, and other costs, rose to 344 basis points in the fourth quarter from 323 basis points in the third quarter. Per-loan production expenses increased to $11,230, up from $10,716 in the previous quarter. Historically, loan production expenses have averaged $7,628 per loan since 2008.
The average production volume per company stood at $540 million in the fourth quarter, slightly down from $542 million in the third quarter. Loan count per company also decreased, averaging 1,609 loans compared to 1,642 in the prior quarter.
Despite production losses, the report highlighted an improvement in servicing financial income. The net servicing financial income per loan rose to $142 in the fourth quarter from a loss of $25 in the third quarter. However, servicing operating income, which excludes factors such as servicing rights valuation and amortization, decreased to $84 per loan from $93 in the previous quarter.
The share of mortgage firms reporting pre-tax net financial profits fell to 61% in the fourth quarter, down from 71% in the third quarter. MBA estimates that the purchase share of total originations was 78% by dollar volume, with the industry-wide purchase share at 62%.
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