Comments on: Optimized Pricing

By: J

Thu, 29 May 2008 19:15:16 +0000

Isn't that more a mistake of the customer than the lender though?
Also, are people really not shopping their mortgages these days?
After all the economy has been through with the mortgage meltdown?
I'm not talking about the need to have payday loan, but about the
personal loans, the helocs, the first and second lien loans- are
people really just taking these at face value that the lender is
giving them the best price they are going to get? Maybe it's just
something that's totally different about me, but I don't even buy
gas without looking at what the gas station next door charges per
gallon- why would I do anything different with hundreds of
thousands of dollars?

By: Mike

Mike — Wed, 28 May 2008 19:28:25 +0000

@J: To a large extent, what you've said is correct. Optimized
pricing goes further than a traditional risk based assessment
though. Instead of offering the lowest price the company is able to
provide, given the risk of the customer, under optimized pricing
they would offer the highest price they believe the customer is
willing to pay. Without comparing options, the customer may assume
that the offer is based strictly on risk, and likely the rate they
would get elsewhere. Obviously this would end up costing the
customer more.

By: J

Tue, 27 May 2008 16:46:35 +0000

Mike, functionally isn't optimized pricing really the way things
have always been done to an extent in the financial services
industry? The pricing structure comes from a combination of the
value of the underlying asset or lack thereof, a risk based
assessment of the borrower to determine repayment probability, and
looking at what the market will bear. Different companies are going
to evaluate different individuals differently based upon any
individual company's tolerance for risk, thus resulting in
different pricing for the borrower.