Decoding the Mortgage Pricing Anomalies: A Guide for Professionals

In the complex world of mortgages, there are often anomalies that pop up and may throw even seasoned professionals for a loop. The current mortgage pricing stack, for example, is brimming with unusual patterns that, without context, could seem confusing. Here's a quick primer to help you make sense of it all.

You might have noticed that higher coupons sometimes come with lower premiums at various places on the rate stack. This can be puzzling, but understanding the reasons behind it can lead to smarter decisions for your clients.

A significant factor behind this phenomenon is the uncertainty in the Mortgage-Backed Securities (MBS) market. When fear grips the market, volatility ensues, often leading to irregularities in pricing.

One intriguing pattern to notice is how lenders group loans into specific rounded coupon pools, like the 6%, 6.5%, or 7% brackets. Consequently, pricing can vary depending on the intended coupon pool for the sale. Those coupons that sit in-between these rounded pools can exhibit erratic pricing. The pricing hinges on which pool—higher or lower—the lender plans to bundle it with, and that, in turn, depends on price execution.

The current market, fraught with unpredictability, makes it difficult to predict or hedge these pricing irregularities. As such, expect to see a host of anomalies on the rate stack.

For Loan Officers, this scenario underscores the importance of rate stack comparison in assessing pricing rather than relying solely on rate or price search. A thorough examination of the full discount schedule is also crucial, as lenders are currently incentivizing lower coupon loans in this part of the rate stack. These loans are less likely to run off as rapidly as the Loan Price Corrections (LPC) or high premium loans might.

In this volatile landscape, understanding these pricing irregularities is crucial in serving your clients better. Thank you for your continued partnership, and here's to navigating these exciting challenges together. Have a great day!