In this low rate environment, the Mortgage Bankers Association (MBA) observed that 2020 has been the best year for the mortgage industry since 2003 and that new purchase originations are expected to grow by 8.5% to a record $1.54 trillion in 2021 

It’s no question that lenders across the country are busier than ever. With this flood of activity, it is also important to take a disciplined and strategic approach on how prices are set on every mortgage and how price differentiation between states can be a key contributor to success. 

Though the average mortgage rate hovers at around 3.00% at the national levelbuyers in different states can be offered different pricing depending on their regional market, even when all loan and borrower variables remain constant. This has implications for lenders on their pricing strategy and profitabilityand how they manage their margins for the secondary market, especially for those who currently apply a one-size-fits-all approach to setting their rates. 

Let's take a look at three homebuyers with the same borrower profile and loan details. 

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Description automatically generated

Homebuyer Profile 
Age: 35 

Income: $80,000/year 

Credit Score: 740 

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Description automatically generated

Loan Details 
Loan Amount: $300,000 

Loan-to-Value: 80% 

Term: 30-year Fixed 


We know that the mortgage markets do not look the same across the country. With different levels of competition and demand in the real estate markets, the level of price sensitivity differs by geography. Using our pricing data derived from over 300 lenders, we calculated the median price on every scenario in real-time and aggregated them to the level of details desired to perform in-depth and granular analysis for margin management – in this case, by states where property price averages at around $300,000 

Using this methodology, we can see how points can vary by states due to competition in those specific markets, and how it ultimately impacts a lender’s margins. Let’s look at how lender can use price sensitivity data to set pricing to win deals and position themselves optimally in each state: 

State-level Pricing 

Homebuyer #1 

Homebuyer #2 

Homebuyer #3 

State 

New York 

Virginia 

Arizona 

Avg. Rate (U.S.) 

3.00% 

3.00% 

3.00% 

Avg. Points (by State)* 

8 bps 

54 bps 

85 bps 

Pricing Position 

Optimal 

Optimal 

Optimal 

Profit ($) Per $300k Loan 

$240 

$1,620 

$2,520 

 

In contrast, if a lender prices the same product across different states with national averagesthe lender would make less in margin by underpricing, and even losdeals by not being competitive enough in the market. 

National Pricing 

Homebuyer #1 

Homebuyer #2 

Homebuyer #3 

State 

New York 

Virginia 

Arizona 

Avg. Rate (U.S.) 

3.00% 

3.00% 

3.00% 

Avg. Points (U.S.)* 

51 bps 

51 bps 

51 bps 

Pricing Position 

Overpriced 

Underpriced 

Underpriced 

Profit ($) Per $300k Loan 

Lose deal - $0 

$1,530  

$1,530 

 

Comparing both scenarios, a more granular pricing strategy offers a modest to significant lift in margin and profitability when lenders incorporate state-level pricing in their overall strategyPricing more in-line with the regional market can also result in winning more deals. 

 

Homebuyer #1 

Homebuyer #2 

Homebuyer #3 

State 

New York 

Virginia 

Arizona 

Lift Per Deal  

8 bps by winning deal 

3 bps  

34 bps  

 

At Nomis, we work with mortgage lenders across the country, so we know that the challenges, goals, and strategies are unique to each organization. Depending on capacity, lenders can decide on whether they want to chase after every deal or focus their efforts on ones where margins are wider. With the increased activity in the mortgage market, it is prudent to continue assessing your pricing strategy and making data-driven decisions that produce optimal profitability from every deal that comes in.   

Wknow its difficult to find time to analyze large datasets and turn dense analytics into actionable steps, especially with the influx of applications. Your capacity for processing incoming applications is finite, but make sure you’re still setting aside time to analyze the markets you’re in, so you are maximizing your returns. 

Let's Talk About Your Growth ➤


*National and state-level pricing information were derived from Nomis’s robust pricing dataset representing more than 300 lenders as of Oct. 12, 2020. Nomis calculates the median price on every scenario in real-time and aggregates scenarios to the level of detail desired to perform in-depth and granular analysis for margin management.