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Th e M Rep o RT | 33 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t ORIGINATION the latest ORIGINATION loan Production, Profits up at indie lenders pipelines point to a solid third quarter, too. P rofits at independent mortgage banks nationwide jumped from the first quar- ter 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 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 bank- ers' 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 quar- ter 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 sur- vey, independent mortgage bank- ers boosted profits by an average 57 basis points, with some seeing up to 100 basis points in im- proved pre-tax profits compared to the first quarter. With unfunded lock pipelines on the rise—climbing 38 percent over the previous quarter—im- proved 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 increasing more than $100 million from the first quarter to $378 million. MBA's quarterly data includes independent mortgage banks, as well as mortgage subsidiaries of chartered banks. While the second quarter looked good in terms of percent- ages, production and profits were both coming off low levels from the first quarter. At that time, Richey May reported an 18-per- cent quarterly decline in produc- tion, while MBA reported average losses of nearly $200 per loan. credit Unions see Healthier Q2 Lending was up all around . . . but mortgages trailed. l ending activity at credit unions nationwide ac- celerated in the second quarter, though mortgage growth lagged behind all other categories. According to a quarterly report from the National Credit Union Administration (NCUA), federally insured institutions reported $673.9 billion in out- standing loan balances in Q2, an increase of 9.8 percent compared to the second quarter of 2013 and the largest annual growth recorded by NCUA since the first quarter of 2006. NCUA attributed the growth to strides made by the economy after a weak first quarter. "A stronger economy and a stronger credit union system go hand-in-hand," commented NCUA board chairman Debbie Matz. Lending was up all around, ranging from year-over-year growth of 27.5 percent in smaller short-term loans in the year's first half to 9.9 percent in first mortgage loans in just the sec- ond quarter. The association also recorded improvements across other metrics, including credit union membership, which grew by more than 900,000 in the second quarter to surpass 98 million. At the same time, the number of federally insured credit unions fell to 6,429, a quarterly decline of 3.8 percent that NCUA called "consistent with recent consoli- dation trends within the credit union system." Of those federally insured credit unions remaining, 448 hold more than $500 million in assets each, adding up to $760 billion in combined assets—69 percent of the credit union sys- tem's total $1.1 trillion in assets. They also reported faster growth and higher returns on average as- sets than the system as a whole. NCUA also said that federally insured credit unions remain well-capitalized, with 97 per- cent reporting a net worth at or above the 7 percent required by law. That compares to 96.2 percent at the end of the second quarter last year. The regulator's analysis did reveal one cause of concern in the system: While investments with maturities greater than three years declined slightly from the first quarter to the second, they remained $5 billion higher than a year ago, posing an interest-rate risk for federally insured institutions. "[T]he slight decrease in long- term investments as a share of assets over the past quarter is not enough to alleviate interest- rate risk," Matz said. "Long-term fixed-rate assets remain elevated, and interest-rate risk continues to be a key concern and a supervi- sory priority for NCUA." "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" — Kenneth Richey, Richey May