Wholesale mortgage price data are a superior way to measure day-to-day changes in the market as a whole, and how prices vary with loan features at any one time. Retail price data have much more “noise” because of the varying markups and fees charged by retail lenders, and because retail data are not broken down by credit score, down payment and other variables that affect the price. Consumers shopping for a loan cannot obtain wholesale prices, but day-to-day changes in wholesale prices can be useful to borrowers involved in negotiating with loan providers, especially in connection with locking the price of their loan.
Structural Features of Wholesale Mortgage Price Data
Wholesale mortgage prices are those quoted by wholesale lenders to their clients -- mortgage brokers and smaller ("correspondent") lenders. Wholesale lenders do not deal with borrowers directly but obtain their loans through these third parties.
Wholesale lenders do not provide identical prices to all their clients. Prices are a little higher for brokers than for correspondent lenders because the latter perform more functions and take more risk. Within each of these groups, wholesale lenders may provide better pricing for clients that generate more loan volume. The data shown here covers Amerisave, a correspondent lender large enough to get the best wholesale pricing,
Wholesale price data have never been available to the general public. Each wholesale lender views its prices as proprietary information available only to those clients who have been approved by them to receive it.
The internet is now the principal method used to distribute wholesale prices, but (with a few exceptions) a password is needed to gain access. The few lenders who don’t require passwords probably assume that any borrowers who stumbled on their site would find the data so overwhelming that they would quickly leave.
Accessing Wholesale Price Data
Wholesale price data is extremely complicated. It takes time for clients to master all the pricing adjustments contained on any lender’s price sheet. To make it worse, no two wholesale lenders format their prices in the same way. This is why pricing mistakes are extremely common.
It is too time-consuming for a client receiving prices from multiple wholesale lenders to compare prices for more than a few unless they have a technology that converts all the disparate formats into one uniform format. With a single format, it is possible to find the best wholesale price in any market niche among any number of lenders. Not many clients have this capacity.
One that does is Amerisave, which gave me access to their data base of wholesale prices. At any one time, it covers only a small number of the more than 100 wholesale lenders operating in 2009, but the lenders it covers are representative of the market. Intermittently, composition changes as some lenders are replaced by others with better pricing.
[Note: I have a business relationship with Amerisave, a description of which can be found by clicking on Fixed Markup Lender.]
Processing Wholesale Mortgage Price Data
I use this data to compile daily series on wholesale interest rates covering 14 types of mortgages, see Wholesale Price Tables and Charts. A snapshot covering 5 products is at the top of my home page.
The data are updated automatically every 30 minutes -- not that they change that frequently but they are reset every morning and sometimes during the day. I am indebted to Daryl Tubbs, who figured out how to do this.
The interest rate shown is for zero points. Lenders don’t actually offer loans at the rates shown, they offer them in even increments of .125%, e.g., 6%, 6.125%, 6.25%, etc. As the rates go up, the points charge goes down. Points are an upfront charge expressed as a percent of the loan balance.
I interpolate between the rate with the smallest positive points and the rate with the smallest negative points to obtain the rate at zero points. The error from interpolation is very small, and having one price makes it easy to compare price differences among programs and at different dates.
Wholesale Mortgage Prices as an Indicator of Market Changes
One purpose in developing these data was to provide an accurate measure of day-to-day changes in the market as a whole. For this purpose data are required daily for a wide variety of loan types.
Wholesale price data are a much better gauge of market conditions than retail price data because they contain much less statistical "noise". Wholesale data do not include retail markups, which vary widely. Furthermore, the wholesale data pertain to transactions where the borrower’s credit score, loan size, down payment and other factors that affect price are specified. In the retail series, these factors are not reported, and any changes in them will affect the price.
Borrowers can use the wholesale data to protect themselves against one of the most pervasive frauds in this market: price escalation between the day they are quoted a price and the day the price is locked. If the market price goes down, the borrower’s price will stay the same, and if the market price goes up, the borrower’s price will go up even more. Loan providers explain a price increase as stemming from "changes in the market", but the market price on the lock day is what they say it is, and borrowers have had no good way to check it. Now they do.
While the wholesale data are an excellent measure of what has happened, they have no predictive power, so don’t waste time trying to spot "trends". Even if the price rises 10 days in a row, view the probability that it will rise in day 11 as 50%.
Wholesale Mortgage Prices as a Measure of Pricing Structure
A second purpose I had in developing the data was to provide accurate measures of how, at any one time, mortgage prices vary with different features of the loan transaction. These features include loan size, FICO score of borrower, down payment, type of documentation provided, and loan purpose.
This is designed as a general education tool for potential borrowers. For example, borrowers considering how much of a down payment they are going to make ought to know how much more costly a low down payment loan is. Similarly, if you want to avoid the hassle of fully documenting your income, it is a good idea to know how much the convenience of merely "stating" your income will cost you.
The tables that show how the interest rate varies with other features of the loan ordinarily don’t change much from day to day, so I compile them weekly rather than daily. However, over a long period they will capture the occasional changes that occur in how the market appraises risk.
Changes in Pricing Structure During 2007
Such a change, in fact, occurred while these tables were being developed. A trial run was done on May 4, 2007, which was before the full eruption of the sub-prime crisis. While the May 4 data covered California rather than the US, the differences between California and the US average are very small.
A marked increase in risk premiums occurred between May 4 and September 21. The difference in rate between a $417,000 loan and a $418,000 loan rose from 0.278% to 0.745%. The $417,000 loan is, and the $418,000 loan is not saleable to Fannie Mae and Freddie Mac. The larger loan has to be sold in the private sector which has been badly shaken by the sub-prime crisis.
In a similar vein, the difference in rate between a full documentation and a no-documentation loan rose from .525% to 1.022%. The rate difference between a 740 FICO score and a 620 score rose from 0.30% on May 4 to 1.37% on September 14. A week later, there were no price quotes on the 620.
Don’t Try to Borrow at Wholesale Prices
You can’t borrow from a wholesale lender, though some borrowers try.
Mortgage brokers often conceal the identity of the wholesale lender whose product has been selected for a potential borrower because they fear the borrower will go directly to the wholesale lender. The borrower may, indeed, find a lender with the same name, but it will be the retail arm of the same firm, and the borrower will be charged retail prices. All the larger lenders have both retail and wholesale divisions.
The brokers and lenders receiving wholesale prices add a markup before quoting retail prices to borrowers. The markup covers the cost of the various retail functions, including marketing to borrowers, counseling and advising them, taking their applications, verifying credit, employment and other information provided by applicants, pulling together all the documents required for the loan to be executed (called "processing"), and arranging for all the third party services required for the loan including insurance (title, mortgage, flood, homeowner) and closing services.
Wholesale lenders don’t have the infrastructure to do any of these things, so forget about the possibility of "getting it wholesale". That occasionally works in men’s suits, but never in mortgages.
Using Wholesale Price Data to Shop
I don’t recommend this. For one thing, borrowers can’t find their wholesale price from my tables unless their own transaction exactly matches the transaction assumptions underlying the tables. Furthermore, wholesale prices are different for lenders and brokers, and there are also some price differences within each group. To some degree, these differences will be offset by differences in markups, but there is no way for borrowers to make such adjustments. I recommend that price shoppers compare retail prices posted by Upfront Mortgage Lenders.