What is par rate and what is its relationship to prime rate? (broker, fund)
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
What is this par rate? It's my understanding that it is the banks own personal prime rate. In other words, because of the free market, Capitalistic, conditions we live under they, the banks, do not have to listen to either the federal reserve or the Wall Street Journal. The fed funds is right now at 2% and the prime rate has been set, by Wall Street Journal, at 5%. If you ask me 3% is a pretty good profit for these banks, especially considering the fed funds rate was 5% about 9 months ago and they were putting money on the street at 61/2 and 7%. Now, it's 2 and they're still at 6 and 7%. If you ask 100 people off the street what the par rate is they'll give you a blank stare but the prime rate they (usually) know --- or have a guess at --- at the very least. To take this a step further, I've been told that yield spread is based off the par rate which is the rate the bank charges the broker and at which the broker makes no money. And, another step, Yield spread premium, therefore, is when the broker talks the borrower into accepting a rate higher than what the par rate is (or what he qualifies for) and then pays him p.o.c. 1% of the loan value for every 1/4% of what he talks the lender into accepting; which the lender, of course, realizes back many times over --- over the 30 year course of the loan --- if he hasn't already sold it. Any help or thoughts would be appreciated.