Compass Point Research & Trading analysts aren’t letting the really bad, horrible news from the first quarter get them down.

They are stating it definitively – mortgage banking results in the second quarter will be better.

I know what you’re thinking…

But wait, the fact is they have some good points.

“Mortgage applications are up 3% (quarter over quarter), driven by a 24% increase in purchase apps and offset by a 10% decline in refinance applications,” Compass Point tells clients. “The average reading for the Compass Point Gain on Sale Index is up 13% from 1Q14 and mortgage rates steadily declined through the quarter, which should put mortgage banks in a good position to report higher margins in 2Q14 versus the last couple of quarters.”

Click the chart to embiggen.

Also, due to lower originations compared to rate locks and a slowdown in prepay speeds, any increase in expenses should be outweighed by a larger increase in revenue, they say.

“However, we continue to hear the correspondent market remains very competitive and margins from this channel should not see the bounce seen in the retail channel. Also, some of the tailwinds from origination revenue will be fair value markdowns on MSRs,” they warn.

Given how currently, purchase applications are down despite record low mortgage rates and a severe slowdown in home price appreciation, it’s hard to fully accept all that.

Compass Point also offers a long-term view on the mortgage finance industry.

“On June 17 we held our first Mortgage Finance day where we discussed a series of long-term thematic views of the origination market, servicing market, mortgage insurance, GSE reform and how we expect policy to impact the sector,” Compass Point said.

Overall, Compass Point expects origination volumes and margins to be pressured through the back half of 2014 and into 2015 before finding a long-term "bottom;" bulk servicing portfolio transfers to continue once the logjam from the WFC-OCN deal is resolved, but prices remain competitive; and the NPL market should see a significant release of supply in the next few years.

All of which is solid forecasting.

This next point, though, isn’t exactly going out on a limb.

“Policy makers will embrace policies that will expand mortgage credit availability and GSE reform is unlikely to occur until 2017.”

Finally, they offer mortgage origination forecasts, based on data from the GSEs and MBA.

“MBA, Fannie Mae, and Freddie Mac released their June origination estimates. Most notably, the MBA decreased their FY15 estimates by 2.9% (compared to their May estimates),” Compass Point notes. “The lower estimates in FY14/15 were primarily driven by a 4.0% decrease in purchase volumes as overall purchases volumes continue to come in below expectations through FY14.”

That's gospel.

But this?

“The MBA still projects an 18% year-over-year increase in purchase origination volume in FY15.”

The MBA is ever optimistic but it’s just hard to believe given the…oh let’s just leave it at that. I have my doubts.

Of course, MBA and Compass Point would likely respond to my skepticism thus: