January 8, 2018
Most mortgage loans are sold on the bond market, and on a percentage basis few loans are retained by the lending institution. Loan types are underwritten to specific investor guidelines. For example, 30-year “conventional” loans are underwritten to Freddie Mac or Fannie Mae guidelines, and “government” loans are underwritten to a specific program such as FHA, VA, or USDA.
A borrower’s potential rate begins to morph into a personalized rate influenced by both the particulars of a transaction and Orion’s broker’s client’s financial situation. Factors such as type of transaction (purchase, refinance), loan amount, credit score, debt-to-income, and down payment influences the mortgage rate as well as how much your client pays at closing to qualify for a certain rate.
Each factor is weighed to assess the risk associated. Investors look at what contributing factors would cause a loan to more likely default. For example, purchasing a primary home is less risky to an investor than a rental property or second home. If your client has saved 20% as a down payment, they are committed financially 20% stronger than if they put 10% down. The bigger the potential risk, the more interest rate adjustments they will find on their personal rate.
ONce a loan is cloased with Orion, it is usually placed in a group or "pool". These pools are known as mortgage-backed securities (MBS). The MBS are made available on the open market for which the mortgage investor guarantees to make payments to the bond buyer each month for interest and principal. Each bond is then priced based on movement in the market. And it is the price of these bonds that “circle back” and determine the rates that your borrowers pay.