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HOW
TO READ RATE SHEETS |
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Understanding how to price
out a loan by reading our Bank Rate Sheets is really quite easy
though it may seem intimidating at first. All of our lenders
furnish us with rate sheets on a daily basis via the internet
or by fax. We follow the rates several times a day in order
to properly quote and/or lock the best available rate and term
to our customers. When reviewing the rate sheet, we also determine
which rate will yield us enough profit to justify the work put
into brokering a loan through our investors. The commission
that we receive by the bank, which is not an upfront cost to
the borrower, is known as a Yield Spread Premium. We still disclose
that back end cost to our borrower on our Good Faith Estimate
and Mortgage Broker Disclosure. In cases such as an adjustable
rate mortgage (ARM) or nonconforming loan, we will charge the
borrower a fee on the front end as well as receive a yield spread
premium.
Lets use the
rate sheet below to demonstrate how we as brokers, determine
the rate that we quote to our borrowers. Please note that rates
can change several times during the course of one business day.
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| 15
Year Fixed |
| Rate |
15 Day |
30 Day |
60 Day |
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6.250%
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(3.443)
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(3.371)
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(3.127) |
6.125%
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(3.295)
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(3.228)
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(2.995) |
6.000%
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(3.086)
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(3.025)
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(2.801) |
5.875%
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(2.867)
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(2.811)
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(2.597) |
5.750%
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(2.403)
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(2.352)
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(2.149) |
5.625%
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(1.730)
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(1.684)
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(1.491) |
5.500%
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(1.446)
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(1.405)
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(1.223) |
5.375%
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(1.152)
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(1.116)
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(0.944) |
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| 30 Year
Fixed |
| Rate |
15 Day |
30 Day |
60 Day |
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6.125%
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(2.417)
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(2.351) |
(2.117) |
6.000%
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(2.111) |
(2.049)
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(1.826) |
| 5.875% |
(1.794) |
(1.738) |
(1.524) |
5.750%
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(1.224) |
(1.172) |
(0.970) |
5.625%
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(0.755) |
(0.709) |
(0.516) |
5.500%
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(0.379) |
(0.338) |
(0.155) |
| 5.375% |
(0.090) |
(0.054) |
(0.082) |
5.250%
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(0.003) |
(0.073) |
(0.011) |
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In
our example, we will quote our borrower a 30 year rate that
carries a lock period of 60 days. If we are seeking to earn
about 1.5% in the form of a yield spread premium (back end fee),
we will quote the rate of 5.875%. According to the rate sheet,
we will earn 1.524% (shown as 1.524 in the 60 Day Column) as
our actual fee. Even though the bank is paying us, we still
disclose that fee on the Good Faith Estimate and Broker Disclosure
as a cost to the borrower. The best part of brokering this type
of loan is that the borrower does not pay any upfront point(s)
to us in normal cases for this type of loan. The 5.875% is quoted
with 0 points to the borrower! If the loan amount is $150,000,
we will earn $2,286 for brokering the loan. |
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Rate:
5.875%, $150,000 Mortgage Loan x 1.524% (YSP) = $2,286.00 (our
commission)
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Note:
The term “par pricing”, pertains to rates that will
not offer us a yield spread premium.The rate of 5.375% comes
the closest to the par price which yields no profit to the mortgage
broker. The good news is that the street rates that competing
retail banks offer will never quote the public a par rate that
would undercut our earning ability since there is no profit
to them as well. We can compete with every retail bank and still
earn from 1-1.5% as a yield spread premium!
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MortgagesRock.Com. All Rights Reserved.
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