The bottom line for many mortgage banks recovered significantly in the second quarter of 2017, after two quarters of severely declining profits. The Mortgage Bankers Association (MBA) said on Tuesday that its survey of independent mortgage banks and mortgage subsidiaries of chartered banks revealed, on average, a five-fold increase from the slim profits in Q1. 

In its Quarterly Mortgage Bankers Performance Report, MBA said banks claimed a net gain of $1,122 on each loan they originated in the second quarter compared to $224 per loan in the first quarter of 2017, itself down from $575 in the fourth quarter of 2016.  Average production volume increased to $526 million per company from $455 million per company in the first quarter, and the number of loans originated per company rose to an average of 2,177 compared to 1,944 loans the previous period.

86% of the firms reporting posted pre-tax net financial profits, including all business lines, in the second quarter of 2017, up from 67 percent in the first quarter of 2017. 

"Production profitability improved in the second quarter as volume picked up with the Spring home buying season and a slight drop in mortgage rates," said Marina Walsh, MBA's Vice President of Industry Analysis.  "Production revenues declined due to increased competition, but that was more than offset by per loan expenses dropping to levels comparable with other recent quarters of similar volume."

"While profits were up in the second quarter compared to the first quarter of 2017, they lagged the second quarter profits of 2015 and 2016 given the movement away from refinances towards a purchase market," Walsh added.

The average pre-tax production profit was 46 basis points (bps) compared to 10 bps in the first quarter of 2017. Since the inception of the Performance Report in the third quarter of 2008, net production income has averaged 51 bps. 

Total production revenue (fee income, net secondary marking income and warehouse spread) decreased to 377 basis points from 395 bps and production revenues decreased to $8,896 per loan from $9,111 in the first quarter of 2017. 

Net secondary marketing income decreased to 302 bps from 322 bps quarter-over-quarter, and declined on a per-loan basis to $7,160 from $7,469.

Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - decreased to $7,774 per loan from $8,887.  Since MBA started tracking them nine years ago, production expenses have averaged $6,035 per loan.  Personnel expenses were $5,119 per loan, down from a $5,802 average the previous quarter.

Productivity increased to 2.5 loans originated per production employee per month from 1.7 loans in the prior period.  Production employees include sales, fulfillment and production support functions.  The average pull-through rate (loan closings to applications) was 72 percent in the second quarter compared to 70 percent, and the average loan balance for first mortgages rose to $248,619 from $242,949 in Q1.  

Net servicing financial income was $27 per loan in the second quarter of 2017, down from $225 per loan in the first quarter of 2017.  

The purchase share of total originations, by dollar volume, reached a study high of 76 percent in the second quarter and MBA estimates it was 68 percent for the industry as a whole.  The purchase share in the first quarter was 68 percent.

MBA said 345 companies reported production data for the quarter.  Seventy-five percent were independent mortgage companies; the remainder were subsidiaries and other non-depository institutions.