In shocking reverse, mortgages proved poor investment for banks who lost money on home loans

U.S. banks lost money on mortgages as prospective homebuyers – tired of battling high mortgage rates and still rising home prices – backed out of the housing market.

Independent mortgage banks and mortgage subsidiaries of chartered banks lost an average of $301 on each loan they originated in 2022, down from an average profit of $2,339 per loan in 2021, according to a recently released report by the Mortgage Bankers Association.

This is the first time mortgage lenders have collectively been in the red since the MBA began tracking these statistics in 2008.

“The rapid rise in mortgage rates over a relatively short period of time, combined with extremely low housing inventory and affordability challenges, meant that both purchase and refinance volume plummeted,” said Marina Walsh, MBA’s Vice President of Industry Analysis.

“The stellar profits of the previous two years dissipated because of the confluence of declining volume, lower revenues, and higher costs per loan,” she said.

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Mortgage rates more than doubled in 2022, briefly touching 7% in October. Rates have since come down slightly.

Loan volumes in 2022 were 50% down compared to 2021. Volume was $2.6 billion (8,371 loans) per company in 2022, down from $4.9 billion (16,590 loans) per company in 2022.

Meanwhile, producing a loan got more expensive for lenders. The total costs including commissions, compensation and equipment increased to $10,624 per loan in 2022, up from $8,664 in 2021.

“Companies could not adjust their capacity fast enough,” said Walsh. “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.”

Since most homeowners have loans with interest rates below 4%, applications for refinancing also were down.

The refinancing share of total originations (by dollar volume) decreased to 20% in 2022 from 46% in 2021. For the entire mortgage industry, MBA estimates the refinancing share last year decreased to 30% from 57% in 2021.

The average loan balance for first mortgages reached a high of $323,780 in 2022, up from $298,324 in 2022. This is the largest single-year increase in the history of the report.

Earlier this year, Well Fargo, once the number one mortgage lender, announced that it would be scaling back on the home lending business to focus only on bank customers and members of the minority community.

Swapna Venugopal Ramaswamy is a housing and economy correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.

This article originally appeared on USA TODAY: US banks lost money on mortgages for the first time on record