Most people think that mortgage lenders want all of the business they can possibly get, but that isn’t true. Suppose you are a lender with 100 million dollars to lend and 100 employees to process your mortgages. If 30-year fixed mortgage rates were to suddenly drop to two percent, you would be swamped with applicants – more than you could handle. To decrease the number of borrowers trying to get mortgages, you would raise your rates. This can happen in reverse, too. A lender that finds itself with money to lend and employees to work might lower its rates to bring in more business. In the industry, this is referred to as “pipeline management.”
How mortgage lender pipelines affect mortgage rates
In times of decreasing mortgage rates, mortgage lenders are likely to receive more applications than they can handle, and are more likely to push up prices – so rates are low, but not as low as they could otherwise be if lenders had unlimited resources. The reverse is also true – when mortgage rates increase, lenders reduce their profit margins to keep rates as low as possible and business coming in.
What can you do about a lender’s pipeline?
The short answer is nothing. You have no effect on an individual lender’s pipeline. But keep in mind that pricing and volume fluctuate constantly – a lender may have too much business for four hours and then not enough for four hours. It will adjust its rates depending on how much business is walking through the door and how much it’s capable of handling. All you need to know is that by comparing the rates of several lenders, you increase your chance of finding one that’s offering below-market rates, and avoiding one that’s offering above-market rates.
Finally, mortgage rate fluctuation among lenders is the reason that LendingTree created its Look Before You Lock tool, which tells you what rates are being offered by other lenders before you commit to lock in your loan