Mortgage originators surveyed by the Mortgage Bankers Association (MBA) saw production profits more than double in the second quarter compared to what had been a dismal Quarter One.  Independent mortgage banks and mortgage subsidiaries of chartered banks told MBA they had averaged a net gain of $1,686 on each loan originated during the quarter, up from $825 per loan during the previous period. 

Marina Walsh, MBA Vice President of Industry Analysis, commented in the company's Quarterly Mortgage Bankers Performance Report that "Production profits more than doubled in the second quarter of 2016, as production volume rose and expenses dropped to a level not seen since the third quarter of 2015. Mortgage lenders also benefited from higher loan balances that reached a series-high of $245,394 and drove production revenue to a series-high of $8,807 per loan." 

"With elevated prepayment activity, we continued to see hits to servicing profitability resulting from mortgage servicing right (MSR) markdowns and amortization.  Nonetheless, the profitability on the production side of the business generally outweighed servicing losses.  Including all business lines, 90 percent of mortgage lenders in our study reported pre-tax net financial profits in the second quarter of 2016, compared to 73 percent in the first quarter of 2016," she said.

The pre-tax nets reported by Walsh while up quarter-over-quarter still were slightly down from the same quarter in 2015 when 92 percent of the firms in the study posted pre-tax net profits. 

Companies' production volume rose to an average of $654 million from $517 million in the first quarter and the number of loans originated per company averaged 2,721 loans compared to 2,196 in the previous quarter.  The average pre-tax production profit was 73 basis points (bps) compared to 33 bps in the first quarter and were also up from the second quarter of 2015 when they averaged 67 bps. Production income was also well above historic levels. Since the inception of the Performance Report in the third quarter of 2008, net production income has averaged 53 bps. 

The purchase share of total originations, by dollar volume, was 66 percent compared to 61 percent in the first quarter. MBA estimates the quarter's purchase share was 54 percent for the mortgage industry as a whole.  

While the jumbo share of total first mortgage originations by dollar volume was 8.49 percent in the second quarter compared to 9.35 percent in the first quarter the average loan balance, for first mortgages rose to $245,394 from $237,419 and was, as noted by Walsh, the highest in survey history.   

Total production revenue (fee income, secondary marking income and warehouse spread) decreased to 372 bps from 377 bps the previous quarter. However, with rising loan balances, per-loan production revenues increased to a study-high $8,807 per loan in the second quarter, up from $8,670 per loan in the first quarter. 

Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - decreased to $7,120 per loan from $7,845. Personnel expenses averaged $4,771 compared to $5,141 per loan in Q1.

Companies originated an average of 2.5 loans per production employee per month from April through June, up from 2.0 loans per month in the earlier quarter.  Production employees include sales, fulfillment and production support functions. 

Servicing net financial income for the second quarter of 2016 was a loss of $160 per loan, compared to a loss of $118 per loan in the first quarter. Servicing operating income, which excludes MSR amortization, gains/loss in the valuation of servicing rights net of hedging gains/losses and gains/losses on the bulk sale of MSRs, was $192 compared to $205 per loan in the previous quarter. 

A total of 345 companies reported production data for MBA's second quarter report.  Seventy-six percent were independent mortgage companies and the remaining 24 percent were subsidiaries and other non-depository institutions.