US banks lost money on mortgages as would-be buyers – tired of battling high mortgage rates and the continued rise in house prices – pulled out of the housing market.
Independent mortgage banks and mortgage subsidiaries of chartered banks lost an average of $301 on every loan they originated in 2022, compared to an average profit of $2,339 per loan in 2021, according to a recently published report by the Mortgage. Bankers Association.
It’s the first time mortgage lenders have collectively been in the red since the MBA began tracking these statistics in 2008.
“Rapidly rising mortgage rates over a relatively short period of time, combined with an extremely low housing stock and affordability issues, have resulted in a drop in purchase and refinance volume,” said Marina Walsh, vice-president. Chair of Industry Analysis at MBA.
“The stellar earnings of the previous two years have dissipated due to the confluence of declining volume, declining revenue and rising cost per loan,” she said.
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Mortgage rates have more than doubled in 2022, briefly hitting 7% in October. Since then, prices have dropped slightly.
Loan volumes in 2022 were down 50% from 2021. Volume was $2.6 billion (8,371 loans) per business in 2022, compared to $4.9 billion (16,590 loans) per business in 2022.
Meanwhile, producing a loan has become more expensive for lenders. Total costs, including commissions, compensation and equipment, increased to $10,624 per loan in 2022 from $8,664 in 2021.
“Companies couldn’t adjust capacity quickly enough,” Walsh said. “The number of production employees has declined, but not at the same rate as origination volume. As a result, productivity in 2022 has fallen to a low of 1.5 closed loans per month per production employee.
Since most homeowners have loans at interest rates below 4%, requests for refinancing have also decreased.
Refinance’s share of total originations (in dollar volume) fell from 46% in 2021 to 20% in 2022. For the mortgage industry as a whole, MBA estimates that refinance’s share last year fell from 57 % in 2021 to 30%.
The average first mortgage balance hit a high of $323,780 in 2022, up from $298,324 in 2022. This is the largest single-year increase in the report’s history.
Earlier this year, Well Fargo, once the number one mortgage lender, announced it would reduce its home lending business to focus solely on bank customers and members of the minority community.
Swapna Venugopal Ramaswamy is housing and economics correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.