Mortgage lender’s cost-cutting couldn’t outrun activity drop

UPDATED, March 21, 12:40 p.m.: Despite painstaking efforts to save up and cut costs, a majority of independent mortgage banks hemorrhaged money in the fourth quarter.

Three out of four independent mortgage banks lost money in the fourth quarter, according to a Mortgage Bankers Association survey reported by Inman.  

The firms — which include mortgage subsidiaries of chartered banks — lost an average of $2,812 per loan, according to the survey. Production expenses soared to an average of $12,540 per loan, a 15-year high going back to the start of the survey.

As mortgage rates surged last year and mortgage activity in the housing market declined, firms started enacting a number of cost-cutting measures. Layoffs were the most visible action, including big cuts at major players like loanDepot.

Top firms Rocket Companies and United Wholesale Mortgage cut a total of 9,500 roles last year, but neither company was willing in earnings reports to use the word “layoff.” The firms instead cited attrition, not filling vacant roles, or voluntary buyout offers.

Still, mortgage companies suffered across the board. One factor preventing better financial performances from the firms is the lack of refinancing, an activity that has virtually stopped as few feel motivated to trade in their locked-in lower rate for a higher rate long-term. Refinancing is more profitable than issuing purchase loans for mortgage banks because it requires less work.

“This has been a challenging time for mortgage originators, with cost-cutting measures, including layoffs, not being enough yet to turn the tide,” MBA analyst Marina Walsh said in a statement.

Another possible boost to lenders’ business is in loan servicing. Mortgage servicing rights often increase in value with higher interest rates because borrowers don’t turn to other lenders when they aren’t looking to refinance, but the rights boom may have ended when rate hikes slowed towards the end of 2022. 

Net income from servicing dropped in the fourth quarter to $37 per loan, down from $102 per loan in the previous period. 

Even if mortgage rates come down from their autumn highs, things aren’t expected to get better for lenders immediately. MBA forecasters predict originations will drop 17 percent in 2023, refinancing volume will fall 33 percent and purchase lending will decline by 10 percent.

— Holden Walter-Warner