In an earlier post, we discussed this topic in the context of identifying and eliminating leakage. In the mini-bulk market, pricing discovery for lenders has become more challenging, with full price discovery only possible at the time of the loan sale and with limited to no discovery of investor adjustment details. It’s tempting to apply a one size fit all premium across all products. We know there is a mini-bulk pay-up, we can fairly easily calculate the pay-up across all of our products, and so we pass along some fraction of it to our pricing and we’re done. Unfortunately this imprecise approach is problematic – we’re going to be over-competitive in some situations and under-competitive in others. This further complicates the profit margin points I made in an earlier post.
With recent advances in automation and reporting, astute lenders can identify the loan types and characteristics that are receiving better pay-ups as well as those that are not. By doing this analysis, lenders can more precisely adjust rate sheet pricing and pipeline marks to better model and implement those premiums.
Gaining a deep understanding of your mini-bulk execution not only improves pricing precision, but it also helps lenders to avoid being adversely selected by borrowers for loans that do not provide any or as much premium. Depending on the investor, lenders can also use best effort pricing and/or industry APIs in conjunction with the sell-side reporting to analyze loan characteristic price adjustments.
In the digital mortgage world, it’s all about the data. If you’re not already doing it as part of your price discovery, detailed analysis of your mini-bulk execution is an important next step.