Late last year Fannie Mae and Freddie Mac went to a risk based pricing model which means factors such as credit score and loan-to-value affect the final rate. I had an interesting discussion with David Morgan, president of the Batesville branch of Guaranty Bank and Trust, about risk based and competition driven pricing. David pointed out that recently we have seen large retail bank competition for deposits drive up CD and Money Market rates but that this practice cannot last due to the high cost of that type of capital. Eventually the large banks will have to reign in their special rates and go back to basics or possibly risk losing money caused by increased interest expense. This theory runs parallel to what we've seen in the mortgage market. The competition to lend to the masses when liquidity was plentiful drove down the lending standards as we saw a tremendous loosening of underwriting standards from 2003 to 2007. This change caused massive losses in the mortgage industry. The GSE's (Fannie and Freddie) had to go back to the basics which is price better for the people who pose less risk and charge more for those who pose a slightly higher risk. For the customer this means that the advertised rate is often lower than the final rate.
Other factors that affect rate pricing include loan amount, occupancy type, rate lock period, and loan program.