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Th e M Rep o RT | 35 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 mortgage Banking Profits Flip to Positive After a poor first quarter, lending is profitable again. P er-loan mortgage bank- ing profits bounced back in the second quarter after starting the year on a poor note. The Mortgage Bankers Association (MBA) reported in late August that independent mortgage banks and mortgage subsidiaries of chartered banks posted a net profit of $954 on each loan originated in the year's second quarter. The report rep- resents a significant turnaround from the first quarter, when mortgage banks took a net loss of $194 for each loan. Marina Walsh, MBA's VP of industry analysis, says there were a few causes at play in the second-quarter rebound. "The gains seen in the second quarter come after first quarter losses that were likely triggered by a variety of factors, including the implementation of new Dodd-Frank regulations and extremely low origination vol- umes," Walsh said. "Some loan closings may have been pushed into the second quarter, result- ing in an increase in profitability as per-loan production costs declined." Average production vol- ume came to $378 million per company in Q2, up more than $100 million—38 percent—from the prior quarter. Volume count averaged 1,676 loans per com- pany compared to 1,238. Production was boosted by a pickup in mortgage origina- tions across the entire industry from a slow first quarter. Out of all mortgage loans made at the banks included in the survey, purchase loans accounted for 74 percent, up from 68 percent in the first quarter. The jumbo share of total first mortgage originations also con- tinued to rise, climbing to a new high of 7 percent, MBA reported. Other market reports from the group have indicated increasing interest in the jumbo market, with lenders opening up the credit box to address demand from high-end borrowers. Meanwhile, total loan produc- tion expenses—including commis- sions, compensation, equipment, and other costs—fell to $6,932 per loan, a decline of $1,093 from the first quarter and the biggest drop in any single quarter since MBA began reporting. Taking into account all business lines, MBA found 81 percent of firms in its study posted pre-tax net financial profits in this year's second quarter, a major leap from the previous quarter's 54 percent but a decline from 92 percent for the same period last year. title insurance Profits drop Weak refi volume is to blame, says Fitch. a s the rest of the housing market struggled in the year's first half, so too did the title insurance industry, Fitch Ratings said in a recent report detailing the firm's latest market analysis. Isolating business at the nation's four largest title insurers—Fidelity National Financial, First American, Old Republic National Title, and Stewart Title Guaranty— analysts at Fitch calculated a combined 12-percent decline in operating revenues through the first six months of 2014 when compared to the same period last year. A large portion of the decline came from lower mortgage refinancing volumes as interest rates increased, Fitch reported, though harsh weather also played a role in stifling real estate activity overall. Title orders were similarly weak in the second quarter, with opened orders falling 19 percent year-over-year. However, revenue per order expanded "due to strength in purchase and commercial activity, as well as rising home values," Fitch said. Profits also took a hit from rising expense ratios, with First American cited as the only company to post a lower ratio. Overall, the group's combined expense ratio rose 4.5 percentage points to 98.1 percent during the first half of 2014, stemming in part from weak underwriting, according to Fitch. "Besides the deterioration in revenues and underwrit- ing profits, recent results for the market in aggregate were negatively affected by one-time acquisition-related expenses incurred by industry leader Fidelity National Financial, Inc.," Fitch added. News wasn't all bad for the title industry, however. The ratings agency also observed an improved loss ratio for all four major insurers due to reduced strain on operating capacity. Loss development from prior underwriting peri- ods also shrank "but remains a focus point," Fitch said. For the future, Fitch predicts ongoing weakness as market fundamentals continue to flounder, reducing the poten- tial for future revenue growth. "While commercial activity remains robust, it is unlikely to fully offset other unfavor- able trends," the agency said in its report. "Disciplined expense management and continued favorable commercial market activity will be important contributors to industry profit- ability in second-half 2014." "Some loan closings may have been pushed into the second quarter, resulting in an increase in profitability as per-loan production costs declined." — Marina Walsh, MBA