Inventory slump and high rates created "perfect storm"
Independent mortgage banks and mortgage subsidiaries of chartered banks faced increased financial challenges, as they reported a pre-tax net production loss of $2,109 for each loan originated in the final quarter of 2023.
This was a noticeable jump from $1,015 loss per loan in the previous quarter, according to new data from the Mortgage Bankers Association (MBA).
Marina Walsh, MBA’s vice president of industry analysis, said the quarter was particularly tough for mortgage lenders aiming to achieve production profitability.
“The fourth quarter is typically the slowest pace of purchase activity for the year,” she said. “This year was exacerbated by the current lack of housing inventory and mortgage rates that increased to their highest levels of the year.”
These elements combined to push refinancing volumes lower, Walsh added, which created a “perfect storm” that led to the lowest production volume reported since 2014.
While production revenues posted a slight increase of five basis points, the expenses associated with loan production surged by over $1,000 per loan from the previous quarter, reaching near-record highs.
This indicates that lenders struggled to adjust their resources in response to changing rates and demand, according to Walsh.
She also noted that the deterioration of productivity metrics suggests the persistence of excess capacity, even after significant reductions in workforce over the past two years.
Still, Walsh maintained that some companies have managed to navigate through seven consecutive quarters of net production losses by relying on cash reserves, capital injections, and strong servicing cash flows.
What are your thoughts on this story? Feel free to comment below.
