THE FACT'S & THE TRUTH.
TRUE MORTGAGE PRICING AND TRANSPARENCY
Are you fully aware of how mortgage prices are calculated?
Don’t feel bad if you don’t fully understand, this isn't generally shared throughout the industry as a whole. Mortgage pricing has two primary financial components.
01
THE FACTS
1st. The price of the mortgage asset itself
The price of the mortgage asset is based on the note rate as it executes in a Fannie/Freddie/Ginnie mortgage-backed security (MBS). Fannie, Freddie and Ginnie publish “To Be Announce” bond pricing daily, and determining the price of the mortgage asset, the asset that will ultimately be owned by the bondholders of the Fannie, Freddie, or Ginnie MBS is a matter of determining in which MBS coupon the note rate fits.
02
MSR-G-Fees
2nd. The price of the mortgage asset itself
2nd. Is the price associated with the loan servicing known as mortgage-servicing rights (MSR). Determining the price of a mortgage asset in an MBS is a straight-forward calculation, determining the price of the MSR isn't. They are based on many things like durations, pay-speeds, predicting the directional movement of the overall interest rate environment, as well as variations in Guarantee Fees (G-Fees) paid to the Agencies by the investors. A quick rule of thumb when trying to determine the price associated with MSR, simply multiply the 25bps paid by the Agencies to the Servicer by 3-5 years (duration) or 3-5Xs (multiple). Generally, MSRs add roughly 50-1005bps to the total price you see on the rate sheets. So, if you know the price of the mortgage asset and the price of the MSR, adding the two numbers together usually gives you a calculated price of the whole loan (the mortgage asset + MSR).
03
VARIATIONS
3rd. Variations & Transparency
3rd. These variations create opportunities for mortgage traders that sell mortgage assets and MSRs in the secondary market. This strategy is typically regarded as a best execution, Most mortgage originators do not share in these secondary best-ex opportunities. Mortgage originators rarely know the real market value of the loans they originate and this lack of transparency often leads to uncertainty and can lead to resentment. After all, no one likes to be taken advantage of. To the defense of many mortgage banks, there are plenty of times when a mortgage bank makes nothing on a loan or even loses money on a loan. But unless there is complete transparency, there is no way to know if originators are being treated fairly. Transparency is the basis of any healthy business relationship, and this certainly holds true in mortgage origination.
03
VARIATIONS
3rd. Variations & Transparency
4th. For what seems like an eternity, the age-old question is, what is Better.. Banker or Broker?The Real question is, what if originators had the same ability to shop best-ex as a Banker just as you can shop best-ex with Broker investors and close the loan as a banker as opposed to a broker? Imagine No cap on margin, no lender paid or borrower paid and having direct access to a pricing portal that provided the industry’s top correspondent investor products and pricing.100% transparent!
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Well, we have a lender that has created a platform that leverages technology to bring down traditional expenses while providing its originators with unrestricted access to real secondary marketing pricing.