Weighted Average Pricing Can Mean Greater Mortgage-Market Precision

To control capacity, influence market share and allocate margin, mortgage pricing strategy is integral to any successful lending operation. The market-average approach may seem like a good starting point because it can be a useful barometer of general pricing temperament. But ultimately it can prove insufficient because outliers can influence it as can the equal weighting applied to lenders of varying size and scope. 

Curinos’ proprietary weighted average market price (WAMP), on the other hand, counters this limitation by dynamically adjusting to a rolling four-week-originations weighting, which thereby provides a better line of sight into production tendencies of the market. This in turn not only provides an accurate reflection of the pricing used to originate locks, but it also serves as an index to optimize the allocation of margin and better inform strategy.  

Under the market-average approach for a standard conforming 30 scenario in Raleigh, for example, the premium price is three times the premium under WAMP, 37.5 bp vs. 12.5 bp. All other things equal, this represents 25 basis points in potential margin recapture (see chart). The implied margin opportunity is therefore the difference between the weighted and non-weighted means.   

Industry profitability is a continuing challenge and we’re approaching the typically tepid fourth quarter. That makes today an excellent time to examine pricing strategy through WAMP to optimize profitability where possible.