Are you aware of a lender calling a mortgage due this year when the buyer took title without assuming the mortgage?
- No (94%, 15 Votes)
- Yes (6%, 1 Votes)
Total Voters: 16
Lender losses continued at an exponential rate in 2022, with most loan companies taking on water faster than they could bail out.
For every loan originated in the fourth quarter (Q4) of 2022, independent mortgage brokers reported an average loss of $2,812, a steep dive from the average loss of $624 per loan experienced in the prior quarter, according to the MBA.
For reference, lender profits have plummeted from the record heights experienced in 2020, when each loan produced an average profit of $4,200. These profits fell back to approximately $2,300 profit per loan in 2021, according to the MBA, and are now falling deeper into negative territory.
In total, 2022 saw the first negative year for mortgage lender profits since the MBA began tracking the data in 2008.
The reason?
2022’s higher mortgage interest rates dissuaded homebuyers from purchasing and homeowners from refinancing. With fewer loans originated, loan production declined precipitously.
To keep up, lenders sought to cut production costs — fire employees — but they couldn’t cut costs fast enough to keep up with shrinking demand. Thus, loan production decreased to a minuscule 1.5 loans originated monthly per employee in 2022, down from 2.5 loans originated per employee each month in 2021.
In all, just 32% of loan companies were able to remain profitable in 2022.
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Surviving the mortgage market downturn
While lenders have no control over market factors like interest rates or homebuyer demand, they can work to reduce their production costs to remain profitable during these lean recessionary years.
Production costs include:
- mortgage loan originator (MLO) compensation;
- technology and equipment;
- property and insurance expenses; and
- sales and support staff.
Funding a refinance mortgage tends to cost lenders less from application through closing than purchase-assist mortgage funding, thus the aggressive cut to owner’s seeking to refinance has also added to higher overall production costs.
One way to reduce production costs is with financial technology (Fintech). Lenders who use Fintech have 13% lower production costs and complete the escrow process five days faster than non-Fintech lenders, according to a Freddie Mac study.
Thinking more creatively, MLOs can also survive by pivoting to adjacent forms of practice during the recession, including:
- earning fees from listings of real estate owned (REO) property;
- working with sellers-in-foreclosure for mortgage workouts and short sales;
- arranging commercial mortgages made by hard-money private mortgage lenders to fund income property owners and buyers; and
- marketing financing to an evolving base of homebuyers and sellers in a recession even as traditional cash-to-new-loans sales and refinancing slows.
One more easy (but often overlooked) way MLOs — and all Department of Real Estate (DRE) licensees — can count on a steady stream of clients is by forging relationships with others practicing in this recessionary environment. This includes servicers, lenders, agents and brokers who will be working with the types of properties — and buyers — most active during a recession.
Buyers are now in the driver’s seat. Thus, the attitude and thinking of agents practicing in a recession needs to shift to a cyclical market with conditions now shaped primarily by buyers — including the prices buyers will pay, and the terms of a purchase that will motivate buyers to acquire property.
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