MBA data shows lenders are suffering
Mortgage lenders experienced significant losses on loans they originated in 2022, as surging interest rates reduced demand, a recent Mortgage Bankers Association (MBA) report revealed. Last year, banks and mortgage companies suffered an average loss of $301 per loan, in stark contrast to the average profit of $2,339 per loan in 2021.
MBA’s vice president of industry analysis, Marina Walsh, explained that rising mortgage rates, coupled with limited housing inventory and affordability challenges, led to a sharp decline in both purchase and refinance volumes. "The impressive profits of the previous two years vanished due to the combination of falling volume, reduced revenues, and increased costs per loan," she added.
The study also found that the cost per loan surged to a record high of $10,624. Walsh noted that although the number of production employees decreased, it did not match the pace of the drop in origination volume.
Additionally, the MBA report discovered that first-time mortgage holders experienced an all-time high cost for their loans. The average loan balance for first mortgages increased to $323,780 in 2022, up from $298,324 in 2021, representing the largest single-year rise since the report’s inception in 2008.
Mortgage rates climbed rapidly during the second half of 2021 as the Federal Reserve implemented substantial interest rate hikes to combat rising inflation. The benchmark 30-year fixed-rate mortgage rates exceeded the 7% mark at their peak. However, mortgage rates have since stabilized, with the average rate falling for the fifth consecutive week to 6.28%. In comparison, the average rate was 4.67% during the same period in the previous year.
Last week, mortgage applications for home purchases experienced an 8% increase compared to the previous week, although they were still 31% lower than the same period a year ago when interest rates were considerably lower. Prospective buyers have faced not only elevated interest rates and home prices but also a scarce supply of available properties.
Refinancing applications remained relatively stable, showing no significant change week to week but were down 57% compared to the same week last year. With current interest rates, very few borrowers can benefit from refinancing. Those seeking to access their home equity are increasingly opting for second loans instead of cash-out refinancing.
Learn the difference between home equity and cash-out refinance and find out which is a better option here.
Mortgage rates rose at the beginning of this week, and their trajectory could be influenced significantly by the government’s upcoming monthly inflation report, set for release on Wednesday.
