The Links Between MBS Markets & Loan Prices

Mortgage pricing is a function of inputs including MBS prices, servicing valuations, guaranty fee levels, and buy-up/buy-down pricing provided by the GSEs. The element over which lenders exercise the most control is their profit margins, which they use both to tweak their profitability and control their volumes during periods of heavy origination activity. 

This white paper illustrates the processes involved in generating consumer loan offerings and intermediate loan prices, including: 

  • 2 common misconceptions about the relationship between consumer loan pricing & capital market conditions
  • How consumer loan pricing is calculated
  • Cash flow allocation of loans
  • Calculating coupon best-execution
  • Creating a “pricing grid”
  • Factors impacting pricing

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