The 47 Mortgage Companies Still Losing Money 🥹

The mortgage industry is profitable again! 🥳 Well, most of it. The MBA says nearly 85% of surveyed mortgage companies made money in Q2. I did some reverse-engineering & found the other 47 firms still losing money, then dug into the data to figure out what they have in common. Turns out size, servicing, purchase mix & where you operate matter a lot.

Also today: a yuge leadership problem at Fannie Mae, some LLPA/FICO tea from Bill Pulte & a big update on the VU kickback case.

Note to subscribers: We’ll be on a reduced publishing schedule next week; finally taking a vacation!

Veterans United Home Loans won dismissal of several claims this week in a class-action lawsuit accusing the nation’s largest VA lender of running an illegal real estate referral & mortgage steering scheme. But, umm, ut oh, the big ones survived.

A federal judge in Missouri ruled that RESPA claims against VU & affiliated Veterans United Realty (VUR) can proceed to discovery, rejecting the argument that its agent referral program is categorically protected by RESPA’s safe harbor for cooperative brokerage arrangements.

The alleged setup is that VUR operates a nationwide network of 5,000+ real estate agents. When a referred buyer closes, the agent pays VUR 35% of their commission. Now, there’s nothing inherently illegal about that. But the plaintiffs allege that agents receiving those leads were also expected to keep borrowers financing w/ VU. Agents who sent borrowers elsewhere allegedly risked fewer leads or removal from the network.

VU argued future leads weren't a “thing of value” under RESPA. But the judge disagreed, noting that Reg X broadly includes the opportunity to participate in a money-making program.

The court also allowed a separate claim challenging the 35% commission split to proceed, though there is a catch: RESPA’s one-year statute of limitations knocked out those claims for most named borrowers, leaving only three plaintiffs.

Other similar steering cases against Rocket & Zillow haven’t yielded big victories for plaintiffs, but at least we’ll get to see the sausage-making 🌭in discovery on this one.

The MBA's Q2 performance report gave the mortgage industry exactly the number it wanted: $973 of pre-tax production profit per loan, up from $727 in Q1. That's five straight profitable quarters 🥳. Volume per firm hit $689M, the highest since Q2 '22, while production expenses fell to their lowest level in basis points since Q3 '21.

MBA's Marina Walsh called it a continuation of the industry's turnaround from the widespread losses of '22 through '24. Fair! Look at the chart. Q4 '23, when roughly seven out of every 10 firms were losing money, feels like a different era.

Buuuuut there's a fun little detail buried in the MBA's data.

The association publishes its profitability percentages out to nine decimal places, which means you can reverse-engineer the company counts it doesn't print. 84.935897436% = 265 of 312 firms.

Meaning 47 mortgage companies still lost money pre-tax in Q2.

That's better than 71 in Q1 & 62 a year ago. But those 47 losers aren't randomly distributed. Certain kinds of mortgage companies are getting absolutely smoked 🔥 🍖. We've got the full breakdown for paid subscribers of The Mortgage Scoop.