Loan Production, Profits Up at Independent Lenders

Profits at independent mortgage banks nationwide jumped from the first quarter to the second as loan production spiked, according to a trend report from business advisory firm Richey May & Co.

Richey May's second-quarter report, released Monday, shows loan production among independent mortgage bankers climbed 50 percent quarter-over-quarter in Q2, marking the first increase of the past three quarters. The biggest improvement was recorded in home purchase volumes, which were up 62 percent compared to a 20 percent increase in refinancing.

"Independent mortgage bankers' unit volume, expenses and margins were very close to those they experienced in the third quarter of 2013," said Keith May, managing director of advisory services at Richey May. "However, pre-tax profits in the second quarter of 2014 were much higher than in the third quarter of 2013. This is probably because third quarter 2013 was in the middle of a declining market, whereas [the] second quarter of this year was in an improving market."

As production rose, so did profits, Richey May reported. According to the company's survey, independent mortgage bankers boosted profits by an average 57 basis points, with some seeing up to 100 basis points in improved pre-tax profits compared to the first quarter.

With unfunded lock pipelines on the rise—climbing 38 percent over the previous quarter—improved conditions are expected to continue in the months ahead.

"The increase in unfunded lock pipelines suggests that we can expect to see similar, if not more improved, production in the third quarter of 2014 as well," said Kenneth Richey, managing partner at Richey May.

Richey May's findings jibe with the latest data from the Mortgage Bankers Association (MBA), which found mortgage banks earned a net profit of $954 per mortgage originated in the second quarter, with average production volume coming up more than $100 million over the first quarter to $378 million.

As well as independent mortgage banks, MBA's quarterly data also includes mortgage subsidiaries of chartered banks.

While the second quarter looked good in terms of percentages, production and profits were both coming off low level from the first quarter. At that time, Richey May reported an 18 percent quarterly decline in production levels, while MBA reported average losses of nearly $200 per loan.