Mortgage Lenders in Red with $534 Loss per Loan in Q2 2023

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The U.S. mortgage sector is grappling with an unprecedented downturn, as a combination of soaring mortgage rates, housing supply shortages, and subdued consumer confidence have squeezed mortgage lenders. Despite a slight dip from last week’s 22-year high, the average 30-year fixed mortgage rate stands at a staggering 7.06%, intensifying the pressure on housing affordability. With industry volume hitting its lowest since 1999, the future of the mortgage lending landscape appears clouded in uncertainty. Marina Walsh, vice president of industry analysis in the Mortgage Bankers Association’s research and economics department, describes the current state as the "absolute lowest in terms of unit volume that we’ve ever seen.”

The Mortgage Bankers Association’s forecast of $855 billion in mortgage originations for the first half of 2023 fell short by $59 billion as mortgage applications continue to plummet. The record reveals a troubling trend: losses have been reported for five straight quarters, with a net loss of $534 per mortgage origination in Q2 2023. The contributing factors are not isolated to the housing market alone. The wider economic landscape, characterized by a radical shift in interest rates and a housing inventory crisis, has inflicted substantial damage upon the mortgage industry, according to John Paasonen, co-founder and CEO at digital mortgage platform Maxwell.

Mortgage Lending Industry Faces Challenges Amidst Low Housing Inventory and Rising Interest Rates

Historic Lows in Industry Volume

The average 30-year fixed mortgage rate, which recently hit 7.06% after last week’s 22-year high of 7.49%, has brought about significant pressures on housing affordability. This spells trouble for mortgage lenders, according to Marina Walsh, Vice President of Industry Analysis in the Mortgage Bankers Association’s Research and Economics Department. She notes that the industry volume in units for 2023 has reached its lowest point since the tracking of units versus dollar volume commenced in 1999.

The Mortgage Bankers Association had projected $855 billion in mortgage originations for the first two quarters of 2023, but fell short by $59 billion as mortgage applications continue to decline.

Losses in Mortgage Origination

Data from the Mortgage Bankers Association has shown a net loss of $534 per mortgage origination in Q2 2023, marking the fifth consecutive quarter of losses. Among the factors contributing to these challenges are the surging mortgage rates, a shortage of housing supply, and low consumer confidence. John Paasonen, co-founder and CEO at digital mortgage platform Maxwell, says these issues have "crushed the mortgage industry over the past two years."

Lenders typically incur losses when the costs of producing a loan exceed the revenue it generates. In response, lenders have begun cutting personnel and lowering origination costs. However, as Paasonen explains, the market volume has not been sufficient to offset these costs.

The Cost of Mortgage Loans

The cost to originate a mortgage loan usually falls between 0.5% to 1% of the total loan amount. A Freddie Mac study revealed that the average cost to originate a loan in 2019 was about $9,300. However, loan production expenses, including personnel and equipment, totaled over $11,000 per loan in Q2 2023, a decrease from $13,171 in Q1.

Another factor affecting mortgage origination volume is the decline in refinances, which have "all but disappeared," according to Paasonen. With more than 60% of homeowners having mortgage rates lower than 4%, a refinance boom is unlikely to occur again for many years.

Signs of Improvement

Despite the ongoing losses reported by mortgage lenders, there have been improvements during the past two quarters. In Q1 2023, the reported loss per loan was $1,972, and those originated in Q4 2022 reported a loss of $2,812 per loan. In Q2 2023, the net loss was at $534 per loan.

Erin Sykes, Chief Economist at residential and commercial brokerage Nest Seekers International, suggests that these challenging times could be an opportunity for solvent businesses to build market share.

The Bright Side: Loan Servicing

While loan origination may be costly, loan servicing can be profitable. In fact, when considering both production and servicing operations, about 58% of mortgage lenders are making a profit. "On the servicing side of the business, we’re at a record low delinquency rate, so cash is flowing," says Walsh.


The mortgage lending industry is facing significant challenges due to rising interest rates and low housing inventory. While losses in mortgage origination continue, there are improvements, and the profitability of loan servicing offers a silver lining. However, the industry must continue to adapt and innovate to navigate these ongoing challenges and seize opportunities for growth.

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