Independent mortgage bankers and subsidiaries made an average $890 profit on each loan originated in Q4 of 2009, down from $902 per loan in Q309, but up from $296 in the year-ago quarter, according to the Mortgage Bankers Association (MBA). As the profits of independent mortgage bankers remains high over a year earlier, the government is reaping profits from its bailout of large banks. Of the firms studied for the MBA quarterly report, 76% posted pre-tax net financial profits in Q409, compared with 82% in Q309. The average production volume per firm totaled $216.5m, up from $189.6m in the previous quarter. "Production profits remained favorable in [Q409] because of strong servicing rights valuations and secondary marketing gains," said Marina Walsh, MBA's associate vice president of industry analysis. "However, provision expense for repurchase demands may weaken profitability in upcoming quarters. We saw the expense provision double to over 6 basis points from the fourth quarter of 2008." The "net cost to originate" -- which includes operating expenses and commissions minus all fee income -- rose to $2,345 per loan, from $1,950 last quarter. MBA found net warehousing income, which represents the net interest spread between the mortgage rate on a loan and the interest rate paid on a warehouse line of credit, held almost constant at 6.26 bps in Q409, from 6,67 bps in the previous quarter. The news of reduced profits for independent mortgage lenders comes as the US Treasury Department is already earning an 8.5% profit on its investments in bailed-out banks, according to Steven Kyle, an associate professor of applied economics at Cornell University. The profit is a positive sign for the strength of the banks, as Kyle noted the only way for Troubled Asset Relief (TARP) funds to be lost is if the firms "went belly-up." Write to Diana Golobay.