Mortgage Blog

Usually the lender price the rate based on the MBS(Mortgage Backed Security) on teh market. But they will also have better or worse than market rates by the following:

1)pipeline management. Like any other business, if they have too much business; they will increase the rates than the market should be.

2)Program Rotation. The lenders will balance their portofolio. When they have enough ARM loans, they will have better rates for fixed, in order to get more business(for fixed loans).

3)Investor promotions. Most wholesale/correspondent lenders backed by some investors. If the investors want to have certain loans, they can have better pricing/rates for those programs. In Jan 2009, Flagstar priced very good rates for 15/30 yr fixed loans in one day when they got 300million funds from the investors, but the rate went up 0.375% to 0.5% higher the 2nd day because of the pipeline  and very low profit margin.

4)competition. The lender watch the rates from other lenders as well(like any other business).

5)Profit/Loss consideration. One reason for the market rate is better than before is that the pull-through ratio from LOs are higher, the over-head cost are lower(it's hard to transfer loans from one lender to another nowadays).

Guess what? For the past year, the profits for most lenders are around 1% vs the average 0.5% for the past years. If they are willing to lower the profit margin, we can still get better rates. But the industry has another problem, tight guideline (hard to qualify the loans) and fewer qualified buyers.