September 9, 2019
Sometimes you’ll pull up to a corner and notice that there are 2-4 gas stations within 200 yards of each other, each selling gasoline at different prices. Despite that, there are customers at each station filling up. Different companies sell the same item at different prices for different reasons, but mortgages are slightly different since they are viewed as investments by some.
For each conventional mortgage that is funded by Orion, we have a choice in the secondary markets in terms of investor and execution. The loan can be sold to an aggregator or bundled with other mortgages into mortgage backed securities (“MBS”), then eventually finds its way into a bond backed Fannie Mae or Freddie Mac or are sold directly to Freddie and Fannie “cash windows.” In that case Fannie or Freddie bundles the loans into their own MBS.
Investors across the country, and around the world, purchase MBS, including loans done by Orion, as part of their portfolios and investment strategies receiving regular payments which includes principal and interest. The investor counts on receiving these payments until the bond pays down. Your clients may ask you about where their monthly payments are going.
Some mortgages are riskier than others, so investors in MBSs containing riskier mortgages demand a higher return. Many wonder, “What makes one mortgage more of a risk than another if they are being underwritten to the same guidelines?” This is where tiered-based pricing comes into play for mortgage consumers through our brokers and Orion.
Brokers know that there are seven main components to tiered pricing: occupancy, number of units, property type (e.g., condominium), LTV, credit score, purpose (e.g., cash out refinance), and rate lock term. There are more factors, but you can see that with so many factors in play, rate quotes can be risky proposition unless all the details and factors of the borrower and property are known. And that is where Orion excels – we dig deep with our broker clients and their borrowers to find the best pricing for them. This is why it is often hard to quote borrowers interest rates unless one knows the complete credit profile, and details of the transaction, and it is also why the price may change during processing when details change.