It's no secret that many lenders have historically been slow to respond to rapid changes in pricing – 2018 is a great example of that.
Which brings me to the topic du jour – pricing concessions!
At a panel on LO comp the other day, a trio of mortgage executives talked about how they can reign in costs as margins compress. Ideas included: 1) how to limit LO comp; and 2) how many pricing concessions they allow LOs to make.
Michael McAuley, a partner at consultancy Garrett & McAuley, told the virtual crowd that pricing concessions can be valuable as an indicator of price discovery.
If the lender is giving no pricing concessions or receiving any such requests, it suggests the lender is more aggressive than the competition. But pricing concessions can also be a real killer. In 2018, some lenders gave pricing concessions on upwards of 70% of loans, he said.
McAuley said he recently did an analysis of some lenders in the Southwest.
"It was a pretty consistent pattern that your top LO was not actually the most profitable and good at holding the margin," he said. "They were the top producer because they were getting a lot of concessions, and it was really kind of the second producer or number three, maybe, who were really the most profitable to the company because they were able to hold the margins while still doing a lot of production. That's sort of the sweet spot there."
LOs, I'd love to hear more about your interactions with the bosses on holding the margin. How often are you asking for pricing concessions? How many bps are the requests typically for? Finally, are there any fair lending issues you have to be careful about? Please message me anonymously at jkleimann@housingwire.com.
Also, consider signing up for a group membership to get you and your team access to HW+ premium content at a reduced rate (
click here to get more info). We have tons of insightful features & analysis this week, including:
➕ Why the housing market won't crash in 2021
➕ What to do when the CFPB investigates you
➕ Who would qualify for the heavily-means tested $25,000 first-time homebuyer grant
➕ Mortgage execs' plan for LO commissions
➕ What's next for the overheated housing market
➕ Potential changes to credit scores
➕ Why a career official at HUD was iced by the Biden administration
➕ How homebuyers are navigating the reno loan process
Hope you have a great weekend!
James Kleimann
Managing Editor, HousingWire
-1.gif?width=600&upscale=true&name=giphy%20(6)-1.gif)
EmoticonEmoticon