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 industry data.
Banks and mortgage lending firms lost an average of $301 on each home loan last year, according to the Mortgage Bankers Association’s annual performance report released last week.
The loss was the first of its kind ever recorded since the MBA began tracking loan production income in 2008.
The average $301 loss marked a major downturn compared to the previous leader, when mortgage lenders recorded an average profit of $2,339 per home during a record boom in US housing demand.
Mortgage lenders were impacted by a surge in loan rates that caused demand for purchase and refinance applications to plummet to their lowest level in decades, according to MBA vice president of industry analysis Marina Walsh.
“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 hit a 25-year low last October as 30-year fixed loan rates topped 7%, pushing many prospective buyers and sellers to the sidelines.
Rates have since cooled slightly, though they are still running well above 6%.
Just 32% of firms active in the mortgage lending sector were profitable last year, according to MBA’s analysis.
That was down from 98% who turned a profit just two years earlier, during a pandemic-era housing boom.
The cost of mortgage lending ballooned to $10,624 per loan last year, outpacing gains in loan servicing.
The US housing market slowdown prompted waves of layoffs and reorganizations throughout the real estate sector.
In January, Wells Fargo, a bank that once had a dominant hold on the mortgage-lending sector, revealed that it would be paring back its mortgage business as conditions in the market deteriorate.
In another shakeup, Homepoint, one of the largest mortgage lenders in the US last year, revealed last week that it would be selling of 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.”