5 Reasons Why Mortgage Banks Charge Different Rates; Mortgage Rates Don’t Correlate To Other Rates
JVM funded $135 Million in mortgages for the month of September – a new all-time record for us.
Our “Big Hairy Audacious Goal” was $125 Million, and we pretty much crushed it 😊.
Congrats to our team!
WHY MORTGAGE BANKS CHARGE DIFFERENT RATES
I know many loan officers whose mortgage banks pay for substantial co-marketing on their behalf.
The loan officers love it b/c someone else is paying for marketing that helps them get more business from Realtors – ostensibly.
The issue every time though is that the mortgage banks increase the rates the loan officers have to charge their borrowers in order to cover the cost of the co-marketing (b/c higher rates generate more yield premium/commission when the loans are sold).
In some cases, the rates are as much as 1/2 percent higher than the rates we offer.
In strong, low-rate markets like we are in right now or when average loan amounts are very small, many borrowers don’t seem as sensitive to higher rates.
But, when rates are edging up or where loan amounts are higher, borrowers are very sensitive to higher rates – so the co-marketing fees often result in less business in the end b/c higher rates sometimes repel borrowers.
I share this story for a few reasons: (1) agents should be leery of loan officers offering co-marketing gifts b/c such gifts usually result in higher rates for clients; and (2) the purpose of this blog – every mortgage bank charges different rates for different reasons.
So – asking a particular loan officer or lender if rates have gone up or down can often lead to very misleading responses.
At JVM, we have a very strong and close relationship with our mortgage bank with total transparency all the way through the sale of the loan.
B/c of this, every day we see “raw pricing” or the actual mortgage interest rates that are available on that day.
So, the mortgage rate quote at the bottom of my blog reflects the “market rate” for that day – every time.
In sharp contrast, the vast majority of loan officers have to simply “accept” whatever rate their mortgage bank forces them to sell.
This is b/c the mortgage banks themselves impose “corporate margins” (or profits) that most loan officers never see, and have no control over.
Mortgage banks increase their rates to: (1) fend off excess volume; (2) to make more money for themselves; (3) to cover increased overhead; (4) to cover co-marketing costs; and (5) to cover loan officer commissions.
MORTGAGE RATES DON’T CORRELATE TO OTHER RATES
This is what I have found particularly interesting this summer.
Last week, my rate quote was 2.875% b/c that reflected the actual market mortgage rate for that day.
BUT – that rate was 3/8% higher than the 2.5% rate I quoted in July – even though the 10 Year Treasury and the Fed Funds Rate had NOT gone up.
In other words, mortgage rates edged up by 3/8% while the 10 Year Treasury and the Fed Funds rate held relatively steady.
So, once again – mortgage rates do not always correlate to other rates. This has always been the case, but it is more pronounced than ever nowadays.
Founder/Broker | JVM Lending
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