Thursday, November 4, 2010

Remember Econ 101?

It was a class many of us took freshman year of college, Econ 101. It took us through the basic principles of business, finance and of course, economics. So how many mortgage bankers are following one of the first lessons, the relationship between supply and demand?

I can remember my first Econ 101 lesson; it was 90 minutes of grueling rhetoric detailing the relationship between supply and demand. Countless graphs and yield curves used to explain their correlation and how they effect pricing. Sound familiar or did you play "hooky?"

For a mortgage lender, the product is a loan but how many bankers or more specifically secondary and capital markets managers actively think of loans as their product? And then think of the good old S/D curves described throughout the first lecture of Econ 101?

The first rule of a supply and demand model: When demand increases and supply remains static, a higher price point is achieved.

For the past six months now every banker I've spoken to is running at maximum capacity. Firms frantically look to increase ops staff to handle the influx of volume but for most they simply cannot keep up. And even if they can, many then run into warehouse/capacity issues. Bottom line here is that demand is HIGH and supply seems to be somewhat limited. So what's my point? Prices!!!

We all know how the large investors react when the MBS market is rallying, lining their pockets a bit. How many bankers and capital market managers have their finger on originations, turntimes, and pricing? Truly understanding the relationship can yield tremendous profits, easily 20-100k/month, depending on your size!!!!

Managing margins like my favorite infomercial, The Ronco Rotisserie Oven, would be a mistake. Don't "Set It, And Forget It", your Econ 101 prof would surely be disappointed.

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