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Wholesalers Lead Mortgage Banking Profits Higher

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As originations increased, refinances retreated and credit scores rose — mortgage banking firms saw an increase in profitability. Improved earnings were most pronounced at wholesale lenders.

The average profit on loans originated by independent mortgage bankers and their subsidiaries jumped to $1,358 during the second quarter, the Mortgage Bankers Association reported today. The figure was up from $1,088 per loan in the first quarter.

During the second-half 2008, mortgage bankers netted just $184 per loan.

MBA said the findings were based on a survey of 292 firms, of which nearly three-quarters were independent.

Second-quarter profits worked out to 71 basis points, up from the prior period’s 55 BPS.

At wholesale lenders, profits jumped from the first quarter’s 42 BPS, or $803 per loan, to 61 BPS, or $1,213 per loan. MBA said the increase at wholesalers was “the most dramatic improvement” among all channels.

The trade group noted that the share of profitable firms climbed to 96 percent from the first-quarter’s 85 percent.

The improvement in second-quarter earnings was fueled by a jump in refinance production — enabling originators to spread fixed costs over more loans, MBA said. Also benefiting lenders was an uptick in purchase originations and a better pull-through rate — with mortgage bankers closing 73 percent of applications compared to the first quarter’s 67 percent.

The increase in volume helped pushed the net cost to originate — all production operating expenses and commissions minus all fee income — down to $1,295 per loan from $1,725 per loan in the first quarter. The net cost excluded secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread.

Net warehousing income — the spread between a loan’s note rate and the interest paid on warehouse line-of-credit — fell to 5.2 BPS from 6.6 BPS in the first quarter. Second-quarter servicing income improved, however, to $41 per loan serviced from a $1 loss.

The average mortgage banking firm originated $280.9 million in the second quarter, rising from $213.9 million in the prior period. Retail sales employees originated an average of 11.0 loans per month, improving from the first quarter’s 10.4 loans.

Refinance share dropped to 62 percent from the first quarter’s two thirds.

Average FICO scores rose, however, to 721 from 714.

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