According to industry data, the US housing market tightened so severely last year that mortgage lenders began taking losses on home loans they originated for the first time on record.
According to the Mortgage Bankers Association’s annual performance report, which was released last week, banks and mortgage lending firms lost an average of $301 on each home loan last year.
Since the MBA began tracking loan production income in 2008, this was the first loss of its kind.
The average $301 loss was a significant decrease from the previous leader, when mortgage lenders made an average profit of $2,339 per home during a record surge in US housing demand.
According to MBA vice president of industry analysis Marina Walsh, mortgage lenders were impacted by a rise in loan rates, which caused demand for purchase and refinance applications to fall to their lowest level in decades.
“The stellar profits of the previous two years dissipated because of the confluence of declining volume, lower revenues, and higher costs per loan,” Walsh said in a statement.
Firms were unable to slash their expenses fast enough to offset the major drop in demand.
“Companies could not adjust their capacity fast enough,” Walsh added. “The number of production employees declined, but not at the same pace as origination volume. As a result, productivity in 2022 fell to a low of 1.5 closed loans a month per production employee.”
Mortgage demand fell to a 25-year low last October as 30-year fixed loan rates topped 7%, discouraging many prospective buyers and sellers.
Rates have since cooled slightly, but they remain well above 6%.
According to MBA’s analysis, only 32% of mortgage lending firms were profitable last year.
This was down from 98% just two years earlier, during a pandemic-era housing boom.
Last year, the cost of mortgage lending increased to $10,624 per loan, outpacing gains in loan servicing.
The slowing of the US housing market has resulted in waves of layoffs and reorganizations throughout the real estate sector.
Wells Fargo, a bank that once dominated the mortgage lending industry, announced in January that it would reduce its mortgage lending as market conditions deteriorated.
In another organization, Homepoint, one of the largest mortgage lenders in the United States last year, announced last week that it would sell its assets to The Loan Store.
“After careful consideration, and in light of current market conditions, we have decided to sell our wholesale originations business to The Loan Store,” said Willie Newman, president and CEO of Homepoint. “We believe this is the best decision for our company to continue to deliver value to Home Point shareholders.”