US banks lose money on mortgages in historic housing shock: Report
US banks are losing money on mortgages for the first time on record, according to a new research report from the Mortgage Banker’s Association (MBA).
The report, which dives into the latest statistics from 2022, reveals a sharp drop in revenue for financial institutions that issue real estate loans to businesses, investors and ordinary Americans.
“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.”
This is the first time mortgage lenders have been in the red since the MBA began tracking this statistic back in 2008.
The report attributes the losses to high mortgage rates in a relatively short period of time, combined with “extremely low housing inventory and affordability challenges.”[ads1];
In addition, the cost that mortgage lenders pay to fund loans increased from $8,664 per loan in 2021 to $10,624 in 2022. The increase accounts for line items such as commissions, compensation, occupancy, equipment and other production costs.
Marina Walsh, MBA’s vice president of industry analysis, says the firm expects mortgage demand from buyers to fall further through 2023.
“There is no denying the very difficult circumstances in which credit institutions are still operating today. MBA’s forecast calls for mortgage volume to decline again in 2023 before an expected upswing in 2024 and 2025.”
The Federal Reserve Bank of Dallas recently warned that home prices could fall 19.5% this year to bring the cost of buying a property in line with the cost of renting.
The risk of falling home prices is so significant that Dallas Fed economists said the housing bubble hypothesis deserves attention.
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