Have you ever wondered who sets mortgage rates?
- The mortgage broker or banker
- The secondary mortgage market (mostly Fannie Mae)
- The Federal Reserve Board
- The marketplace
Answer: All of the above
Let’s take a look at each of these components seperately:
The Mortgage Broker or Banker:
The mortgage broker or bank loan officer receives a rate sheet each morning from the various wholesale lenders they deal with. Listed are the interest rates for the various loan products if the loan is locked that day (before 4:00pm). Par is the interest rate the lender will make on the loan, exclusive of any fees or commissions to the broker or loan officer.
The loan is arranged with the borrower at a rate higher than par, a rate that has a commission built into it. This commission is paid by the wholesale lender to the broker or loan officer.
Next we will look at the "Secondary Mortgage Market" (to be continued).
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