The average retail mortgage lender lost $645 per loan in Q1 2024, down from $2,109 in Q4

Key Takeaway

• Independent mortgage banks reported a reduced pretax net loss of $645 per loan in Q1 2024, down from $2,109 in Q4 2023.
• Production revenue increased to 371 basis points, while production costs decreased to 395 basis points, improving profitability.
• MBA forecasts $1.8 trillion in origination volume for 2024 with mortgage rates ending at 6.5%, expecting further growth through 2026.

Mortgage Market Sees Reduced Losses in Q1 2024

Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a pretax net loss of $645 per loan in the first quarter of 2024, a significant improvement from the $2,109 loss per loan in Q4 2023, according to the Mortgage Bankers Association’s (MBA) latest quarterly performance report. This marks the eighth consecutive quarter of net production losses, but the reduction in losses indicates a positive trend. Marina Walsh, MBA’s vice president of industry analysis, noted that production revenue rose above the historical average while production costs declined, leading to an improvement in the production bottom line by almost 50 basis points during the quarter.

Improved Financial Performance and Market Stability

The first quarter of 2024 saw 59% of mortgage companies turning a profit, the highest level in eight quarters, up from 29% in Q4 2023. The average pretax production loss improved to 25 basis points (bps) from 73 bps in the previous quarter. This improvement coincides with a more stable secondary mortgage market, where spreads have narrowed since their peak in the fall of 2023. Additionally, housing inventory has increased from last year's lows, although it remains below pre-pandemic levels. The average production volume per company rose to $384 million, up from $359 million in Q4 2023, with the average company producing 1,193 loans, up from 1,170 loans.

Mortgage Rates and Applications Show Positive Trends

Mortgage rates in the U.S. have dipped below 7% for the first time in over a month, with the average 30-year fixed loan rate at 6.94%, down from 7.02% the previous week, according to Freddie Mac. This marks the third consecutive week of declining rates, which is expected to provide some relief to buyers. The Mortgage Bankers Association (MBA) reported a 1.9% increase in mortgage applications for the week ending May 17, continuing a three-week upward trend. This rise in applications aligns with a decrease in average mortgage rates, which reached a seven-week low due to expectations of lower inflation.

Broader Implications for the Mortgage Market

The reduction in net production losses and the stabilization of mortgage rates suggest a more favorable environment for mortgage lenders and borrowers alike. The MBA's forecast for the remainder of 2024 anticipates $1.8 trillion in origination volume, with mortgage rates expected to end the year at 6.5%. Chief economist Mike Fratantoni predicts a major rebound for the mortgage market over the next two years, with origination volumes projected to reach $2 trillion in 2025 and $2.28 trillion in 2026. Mortgage rates are expected to fall to 5.9% in 2025 and 5.7% in 2026, indicating a more stable and potentially lucrative market for lenders.

My Perspective on the Market Trends

The recent data from the MBA and other sources highlight a cautiously optimistic outlook for the mortgage market. The improvement in financial performance for mortgage lenders, coupled with a more stable secondary mortgage market and declining mortgage rates, suggests that the market is on a path to recovery. However, challenges such as limited housing supply and high property prices continue to weigh on sales. The Federal Reserve's future actions on interest rates will be crucial in determining the market's trajectory. If inflation continues to show signs of easing, we could see further declines in mortgage rates, providing additional support to the housing market.

Street Views

• Marina Walsh, MBA (Cautiously Optimistic on the mortgage industry):

  "While the first quarter of 2024 marks the eighth consecutive quarter of net production losses, these losses were less severe than the previous two quarters. In basis points, production revenue rose above the historical average and production costs declined. This led to an improvement in the production bottom line by almost 50 basis points during the quarter."

• Mike Fratantoni, MBA (Bullish on future mortgage market):

  "We expect $1.8 trillion in origination volume this year, with mortgage rates expected to end the year at 6.5%... A major rebound for the mortgage market over the next two years is anticipated with $2 trillion in origination volume in 2025 and $2.28 trillion in 2026. Mortgage rates should fall to 5.9% in 2025 and 5.7% in 2026."