Pricing in profit

Case Study: Mortgage Trading Analysis in Power BI

Nick Edwards

Capital Markets Analyst at Mynd

The financial system with the flow of money and flow of investment in full circle

lenders selling loans in the capital markets

Lenders make money by charging fees to borrowers and selling loans to investors at a premium.

Competitive markets

A competitive market is a market where there are many buyers and sellers for an identical or very similar product
- 4,338 lenders and 23.3mm loan applications in 2021 (U.S.)
- No single buyer or seller can set a price

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¹ https://www.consumerfinance.gov/data-research/hmda/summary-of-2021-data-on-mortgage-lending/

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Profit money made after all expenses have been paid.
- Revenue - Expenses
Revenue is the total money made from doing business
- i.e., fees, trade premium
Expenses are the costs of doing business
- i.e., paying the mortgage banker, office expenses, discounts

Example: If revenue is 50,000 and expenses are 30,000 - what is the profit?

Profit = 50,000 - 30,000 = 20,000

Loan profit margin is the percent of the profit earned per dollar lent
- Profit ÷ Loan Amount
Example: What is the loan profit margin of a loan with 14,000 in profit and a loan amount of 100,000?
- 14,000 ÷ 100,000 = 14%

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Business set margin targets
- Analyze costs and predict revenue
Higher than expected margins
- Not always good in a competitive market
- Losing market share/customers to competition due to high pricing
- Need to charge less

target icon with arrow above point towards target

Business set margin targets
- Analyze costs and predict revenue
Higher than expected margins
- Not always good in a competitive market
- Losing market share/customers to competition due to high pricing
- Need to charge less
Lower than expected margins
- Risks going out of business!
- Need to charge more
Financial markets impact lenders' profit!

Target icon with two arrows pointing toward the target

Case Study: Mortgage Trading Analysis in Power BI