Independent mortgage bankers and subsidiaries made an average profit of $1,358 on each loan they originated in the second quarter of 2009, according to the Mortgage Bankers Association (MBA). This profit marks an increase from the first quarter of 2009 when profits averaged $1,088 per loan, according to the MBA's most recent Quarterly Mortgage Bankers Performance Report. This report measures the performance of independent mortgage bankers and subsidiaries of banks, thrifts and hedge funds. "The refinance boom continued in the second quarter of 2009. The big increase in production volume allowed lenders to spread their fixed costs over a larger number of loans, thus increasing net profits. At the same time, purchases picked up as homebuyers with good credit took advantage of low interest rates," said Marina Walsh, MBA's associate vice president of industry analysis. "Not only do we see an uptick in average borrower FICO, but we see pull-through rates at close to 73 percent in the second quarter from about 67 percent in the first quarter. These factors contributed to the further drop in production operating expenses per loan." Among the principal findings of the MBA report are: ► The average production volume for each firm was $280.9 million in the second quarter 2009, compared to $213.9 million in the first quarter 2009 and $125.6 million in the fourth quarter 2008. ► The average gross dollar volume for both refinancings and purchases increased in the second quarter 2009. The share of refinancings to total originations for this sample dropped to 62 percent in the second quarter, from 66 percent in the first quarter. This share was still significantly higher than 42 percent for the fourth quarter 2008. ► Simple average borrower FICO score for loan originations was 721 in the second quarter 2009, compared to 714 in the first quarter 2009. ► Average pull-through (the number of closings divided by the number of loan applications) rose to 73 percent in the second quarter 2009 from 67 percent in the first quarter 2009. ► 96 percent of the firms in the study posted pre-tax net financial profits in the first quarter 2009. In the first quarter 2009, 85 percent of the companies posted profits. Only 53 percent of the companies were profitable in the fourth quarter 2008. ► Mortgage banking production profits were 71.29 basis points, or $1,358 per loan. These profits show improvements over the previous quarter when profits averaged 54.58 basis points ($1,088 per loan). ► The second quarter production profits for mortgage firms that were primarily in the wholesale channels showed the most dramatic improvement, rising 46 percent to 61 basis points ($1,213 per loan) from 42 basis points ($803 per loan) in the first quarter 2009. ► The "net cost to originate" fell to $1,295 per loan in the second quarter 2009, from $1,725 per loan in the first quarter 2009. The "net cost to originate" includes all production operating expenses and commissions minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread. ► Production operating expenses - commissions, compensation, occupancy and equipment, and other production expenses and corporate allocations - dropped to $3,581 per loan in the second quarter 2009 compared to $3,738 per loan in the first quarter 2009. The average number of retail loans originated per retail sales employee rose to 11.0 loans per month in the second quarter 2009, from 10.4 loans per month in the first quarter 2009. Net warehousing income, which represents the net interest spread between the mortgage rate on a loan and the interest paid on a warehouse line of credit, continued to pose a challenge for the mortgage bankers in this study. Interest spread dropped to 5.19 basis points in the second quarter 2009, compared to 6.60 basis points in the first quarter 2009 and 9.28 basis points in the fourth quarter 2008. Net servicing income of these independent mortgage companies and subsidiaries improved to $41 per loan serviced in the second quarter 2009, from net financial losses of $1 per loan serviced in the first quarter 2009. Quarter-by-quarter net operating servicing income (servicing fees, net escrow earnings and ancillary income less direct and indirect expenses) showed no change at $165 per loan. For more information, visit www.mortgagebankers.org.