Vaultedge Newsletter - How can IMBs come back stronger in 2023 ?

November 28, 2022

As per a recent MBA study, an average IMB lost $624 per loan in Q3, as against a loss of $82 per loan in Q2 - an eight fold jump !

Mounting losses & dipping volumes is creating a double whammy for lenders and more specifically, for the mortgage employee. IMB employees formed the backbone of the 2020-21 dream run. They dedicated their lives, nights & weekends to drive unprecedented volumes at their respective organizations. Fast forward to 2022, they are left with a bag of intense worry & stress around mass lay offs. Perhaps, it's a good time for IMBs to assess novel measures to contain their losses, apart from headcount right-sizing.

In the current market, where loans are far & few - IMBs are deploying multiple levers around consolidation, cost rationalization and restructuring. While these are driven mainly by a survival instinct to minimize downside, IMBs must not dismiss upside maximization levers for 2023.

They should reprioritize spends & initiatives to ensure that quality of their loan & MSR asset portfolio should be top notch. With the right people & tech stack, IMBs can ensure impeccable asset quality on both buying & selling side. Consequently, they could benefit from a vibrant MSR & secondary market trades in the short term.

This could not only counter-balance the losses in the origination business but also solve for profitability in 2023.

Weekly Roundup

The mortgage industry has been experiencing some of the most challenging times we have seen. This is due to many factors, but mostly the dramatic swings in volatility. There are countless articles out there surrounding the impact of this market on borrowers, loan officers, fintech and companies. There are also countless articles out there regarding the numerical stats surrounding layoffs. 

The loan losses continue to grow for independent mortgage banks (IMBs). The Mortgage Bankers Association (MBA) is out with new numbers showing IMBs reported a net loss of $624 on each loan they originated in the third quarter of 2022; that’s compared with $82 per loan in the second quarter of 2022.

On the origination side, these companies’ costs exceeded $11,000 per loan for the first time, despite a reduction of 19% year over year for the total employees per firm, which contributed to the pre-tax net income in Q3 hitting its lowest level since 2008..

Many IMBs are sitting on servicing portfolios comprised of loans that may not be in the money for refinance for many years to come. This creates a profound dilemma because the related MSRs owned by these firms now bear premium valuations that are dependent, in part, on the future potential to refinance the loan. Without new lending and recapture of portfolio assets, present fair values for MSRs come into question ..

At least three lenders have announced the formation of partnerships with real estate or homebuilder companies in November. The partnerships allow all parts of the homebuying process to be brought under one roof. The most recent announcement came from Newrez, which partnered with Keller Williams Bergen County Partners to create New Jersey-based Carnegie Mortgage Partners. It marks the nonbank's 20th joint venture to date under the portfolio of Newrez Ventures LLC, formerly known as Shelter Mortgage ..

By the time 2022 is wrapped up, mortgage lenders will have originated about $2.2 trillion in loans, about half of 2021’s $4.4 trillion in volume, according to industry forecasters. However, some forecasts present even a grimmer scenario for 2023 - over the next 12 months, mortgage originations nationwide could come in as low as $1.3 trillion to $1.7 trillion. With such a drastic downturn, the pressure for industry consolidation increases dramatically. Here's a quick low down of what might the IMB acquisition landscape may turn out in 2023 ..

Technology roadmaps are being revised for 2023 as mortgage rates fluctuate, hammering home sales and shrinking lender profit margins.

The main focus for IT departments going forward is to find solutions that will beef up volume while shrinking expenses. Lenders are moving away from technology initiatives that were implemented during the pandemic. Instead, they are investing in data collection, robotic process automation, and migrating their systems to the cloud. 

Spotlight: What's new at Vaultedge

We are super excited to have hosted Brad Rice, Founder & CEO of Amerifund Home Loans, on Mortgage Vault Podcast.

Brad shares key insights on how lenders could tide over the current market situation by 'looking at the deal & not the decade'.

He elaborates that - current high interest rate macro-environment is a part of overall business cycle. Hence, there would always be potential home owners looking to purchase a home. However, we need innovative new products that could help such borrowers qualify despite 7+ % interest rate on home loans. Thus lenders can win by focusing on improving loan product accessibility for such borrowers.

Listen to the full episode below:

In this episode we are in conversation with Brad Rice, Founder & CEO at Amerifund Home Loans. Brad has close to three decades of experience across retail & wholesale lending.