Hello fatwallet financiers!

Many of you know the mortgage professor has an amazing online tool allowing daily tracking of wholesale mortgage rates, and day to day fluxuations. The wholesale rate tracking tool is available through this link.

It's a great way to track mortgage rate changes from one point in time to another. However, looking at this chart begs the question: what are typical rate markups for going through a retail channel?

Well the purpose of this post is to try to answer that question, at least for one local lender I just got hold of today's rate sheet of: WAMU.

I crunched the WAMU numbers, making adjustments as needed to match the same loan criteria as used by the mortgage professor's wholesale rates, in order to allow comparison of retail to wholesale rate. These criteria are:
* 400k loan size
* 500k property value (80% loan to value)
* FICO score of 720 (WAMU requires 680 minimum FICO for the best rates; they pulling all three bureaus and use the score in the middle.)
* Full Docs
* Escrow
* 60 day lock
* rate interpolated to zero closing costs (for WAMU this includes all estimated closing costs for refinancing, including appraisal, etc.)

Here is how the wholesale and WAMU retail rates compare for all the Fixed and ARM Products offered by WAMU and tracked on the mortgage professor, as of today's rates 2/04/2008:

Product                 Wholesale  Retail     Mark-up
----------------------  ---------  ---------  ---------
30 Year Fixed           5.417%     5.683%     0.266%
20 Year Fixed           5.358%     5.581%     0.223%
15 Year Fixed           4.818%     5.191%     0.373%
10/1 Interest Only ARM  5.311%     6.025%     0.714%
10/1 ARM                5.044%     5.925%     0.881%
7/1 Interest Only ARM   5.252%     5.419%     0.167%
7/1 ARM                 4.666%     5.481%     0.815%
5/1 Interest Only ARM   4.848%     5.263%     0.415%
5/1 ARM                 4.552%     5.294%     0.742%
3/1 ARM                 4.247%     5.213%     0.966%

Analysis:
* the least markup was .167%
* the most markup was .966%
* the average markup was .593%
* the markups for the fixed mortgage products were .223% - .373%
* generally, the arm products offered had a wider range of mark-up variation up than the fixed loan products

If you guys have any other questions about the WAMU rates sheets, let me know.

I hope this information proves useful for others potentially in the market for a mortgage refi or home purchase.

Summary: mark-ups as low as 3/16% - 1/4% above wholesale can likely be found with some comparison shopping.

I appreciate the work. Thanks OP.

FarmerOak - indeed there was a max markup of .966%; nice catch. (And what a crappy deal that is too!)

-----------------------

Also, some more information on how WAMU's rates change, which I just remembered and wanted to pass on: the rates vary each day, with a new rate sheet becoming available at the start of the day, in eastern standard time, being "good" for an 8 hour duration, through the end of the day, also in eastern standard time. (So if on west coast PST, can't wait until 5PM!) Through that 8 hour time period they were "good" and would not fluxuate mid-day.

And... I found wholesale rates could be fetched "by state", which would make them more accurate than "whole USA", so here is the comparison done again, this time with wholesale data specific for Washington State:

                        WA State
Product                 Wholesale  Retail     Mark-up
----------------------  ---------  ---------  ---------
30 Year Fixed           5.402%     5.683%     0.281%
20 Year Fixed           5.369%     5.581%     0.212%
15 Year Fixed           4.817%     5.191%     0.374%
10/1 Interest Only ARM  5.284%     6.025%     0.741%
10/1 ARM                4.989%     5.925%     0.936%
7/1 Interest Only ARM   5.200%     5.419%     0.213%
7/1 ARM                 4.606%     5.481%     0.875%
5/1 Interest Only ARM   4.775%     5.263%     0.488%
5/1 ARM                 4.512%     5.294%     0.782%
3/1 ARM                 4.190%     5.213%     1.023%

Switching to state-specific wholesale data, the mark-ups rose slightly.
Notably, the lowest mark-up became .212%, the highest 1.023%, and the average mark-up .593%.

Dreamtoday said:is there a way to get a mortgage at wholesale?

Find a broker and an underwriter and a processor and a title company and an appraisal company and a closing agent and a funder willing to work for free.

i agree its heck trying to get the best retail rate without feeling screwed, just ignore the wholesale... you will drive yourself crazy.

I second Geo123's advice to simply shop for the best rate, regardless of the retail or wholesale label. And just as important, if not more, is to know how to factor in the up-front fees within the individual's time they expect to hold the loan.

There are a lot of ways to figure this out, but a simple approach is to take:
(upfont-fees) + (note_interest) + (upfront-fees*(1+mortgage_rate)^loan_duration)

Closing fees are a whole lot more variable than rates, and can easily turn a good looking rate into a horrible offer.

addendum: The calc above can be simplified to taking all non-identical up-front and closing fees and costs, and adding them to the loan principal. Then all one has to do is look up the interest paid after however long the person intends to hold the loan. The same -- say, 30 year-- table should be used in each instance.

jakeru said:Since wholesale rates changes correlate to changes in the retail rates, if you know approximately what kind of markup to expect, you also know *generally* what can be expected to be found in the retail market at that same point in time.This is all true but there is simply no need to make the process so complicated by trying to figure out markups and the like. Pick a couple of providers that generally offer competitive mortgage terms (Penfed on its 5/1, 5/5 ARM's and 15 year fixed program would be one such provider) and monitor their websites for rate changes. This way you'll know exactly what the loan terms are and won't have to waste your time tracking wholesale rates and determining mark-ups.

geo123 - If you are only using the internet to get your retail quotes, in my opinion you are missing out on a big chunk of the mortgage lending market. Unless you cast a very wide net and perform many quotes, it's unlikely that the lenders you find are going to offer the lowest rates. When wholesale rates drop, you are not guaranteed with your method to see the change if you are only comparing a couple retailer's prices. Also, many internet quotes are in "bits and pieces", or with unstated assumptions (IE: re detailed closing costs), which makes efficient "apples to apples" comparison difficult. Lenders allowing very specific, individually tailored quotes through the internet are few and far between; usually it is necessarily manual and time-intensive process to get a quote that is applicable or comparable. The wholesale mortgage price aggregating service takes much of that legwork out of the equation.

There is much written in mortgage professor's web site about all these details, but it is beyond the intended scope of this thread, which is to answer the question: what is the mark-up of retail mortgage above wholesale rates?

I don't believe that retail mark ups vary as much as you indicate, at least for competitive offers. The mortgage brokers work pretty hard competing against each other for business, to the point that it is a generally competitive market. If you enter into a contract with an upfront mortgage broker for example, your contract may even dictate that he gets a "fixed" commission, regardless of which lender or product he ends up guiding you to. In this case, the retail mark-up truly could be fixed.

Anyway, I am done arguing with you about this. If you don't care for my methodology because you've determined it is not optimal for your situation, then simply don't read it, and do what's best for yourself. No need to threadcrap or discount the value of a methodology already judged useful by many other readers (if the amount of green is any indication).

jakeru said:geo123 - If you are only using the internet to get your retail quotes, in my opinion you are missing out on a big chunk of the mortgage lending market.Please re-read my posts again, as well as those of a few other posters in this thread who have pointed out the same thing as I have. Namely, that you can use the internet to get retail quote, wholesale quotes and everything in between. We've said that you should worry a lot less about "retail" and "wholesale" labels, which are often meaningless, and much more about the overall mortgage terms.

Also, many internet quotes are in "bits and pieces", or with unstated assumptions (IE: re detailed closing costs), which makes efficient "apples to apples" comparison difficult. Lenders allowing very specific, individually tailored quotes through the internet are few and far between; usually it is necessarily manual and time-intensive process to get a quote that is applicable or comparable.That is of course not true. We already have a number of excellent threads discussing some of the most competitively priced lenders in various market segments and loan programs. Read the threads, create a small list of lenders who are likely to offer you the most competitive terms for your specific needs, get an idea about their closing costs (you can even get GFE's from them if you want) and then just monitor the rates on their websites.

The wholesale mortgage price aggregating service takes much of that legwork out of the equation.Ghhhhm, it does? What does knowing the wholesale rate give you when you don't know what closing costs are associated with the rates and what the rate margin is to get the retail rates (as I've mentioned, rate margins will vary widely lender to lender and even loan officer to loan officer).

There is much written in mortgage professor's web site about all these details, but it is beyond the intended scope of this thread, which is to answer the question: what is the mark-up of retail mortgage above wholesale rates?Again, your question is unanswerable because the margin will vary lender to lender and even loan officer to loan officer. As I've also mentioned, it is also not at all unusual for the same wholesale lender to give different rates to different brokers.

I don't believe that retail mark ups vary as much as you indicate, at least for competitive offers. The mortgage brokers work pretty hard competing against each other for business, to the point that it is a generally competitive market. If you enter into a contract with an upfront mortgage broker for example, your contract may even dictate that he gets a "fixed" commission, regardless of which lender or product he ends up guiding you to. In this case, the retail mark-up truly could be fixed.Brokers get compensated in a lot of different ways, so all this "fixed" commission stuff doesn't get you very far. In addition to direct compensation and yield spread, lenders can also offer volume and performance based bonuses, which you will never see. Brokers can offer similar bonuses to their loan officers, which is just one of the reasons that loan terms can often vary widely among loan officers working for the same brokers.

Anyway, I am done arguing with you about this. If you don't care for my methodology because you've determined it is not optimal for your situation, then simply don't read it, and do what's best for yourself. No need to threadcrap or discount the value of a methodology already judged useful by many other readers (if the amount of green is any indication).Fair enough, although I suspect that the amount of green you've received doesn't mean that people have judged your methodology useful. I suspect that the green in this case means that people do not know enough about this but that it sounds promising. Most people do not know enough about this subject to know what is and is not useful and, as some of the posts in this thread demonstrate, a lot of people are interested in "getting a mortgage at wholesale." What they don't realize is that they may or may not come out ahead when they do that -- this is very different from getting any other product, such as a car, at wholesale rates.

In devising your "methodology," I am afraid that you have misunderstood the mortgage professor's goals in posting all this information on its website. You simply can't use all this information for your intended purposes, but there is a MUCH easier and more effective way to accomplish your goals, which is the same strategy that's been used on this board and elsewhere for quite some time, which is the same very simple strategy several of us mentioned above.

Off topic and on topic at the same time: I love Fatwallet financial. I revel in it; it's like bathing in data. Secret data.
Okay, that was weird. But I'll be buying in about one year, so I'm reading up now.