Rates are getting bid down in my market. Which term do you give up first?

Rate, and I say that as someone who has analyzed this into the ground without funding anything. The rate cut costs you money in the good case. The LTV move costs you principal in the bad case. Those are different kinds of loss and I would rather my mistakes come out of my income.

On land deals I would move none of them, because the borrower who needs my money has nowhere else to go. The compression you are describing is happening in the middle of the market where a hundred lenders will fund a cosmetic flip on a tract house. The odd collateral still pays.

Before I picked, I would want to know what the two lenders who beat you actually are. If they are funds deploying institutional capital at a cost basis you cannot match, then you are not in a price fight you can win, and chasing them down a hundred basis points at a time ends with you at their pricing and their risk without their diversification. Do you know who took those two deals?

Hold and sit in cash. I want the boring version that works and 70% with a real appraisal is the boring version. If the market is paying me less for the same risk, I take less risk, which means less of it.

Coming from the trades, the 75% thing worries me for a reason nobody has said yet. Higher LTV means the borrower has less of his own money in the job, and the guy with $12k of skin walks off a stalled site a lot faster than the guy with $60k in it. That is a behavior change, not just a math change.

@parcel is right about the middle of the market. In the rural markets I look at there is nobody bidding at all, and a $90k loan on a $140k house gets one or two quotes if you are lucky. The compression story sounds like a metro story.

Cutting points would bother me most because that is the fee that covers the work you actually do on the file. If you drop it, either you spend less on underwriting or you do the same work for free, and one of those shows up in your loss rate eventually.

Your numbers understate the points question. On a loan that lives seven months, 2 points on $250k is $5,000 collected over 0.58 years, which is 3.4% annualized on top of the coupon. Half a point of that is 0.85% annualized gone. Your 1.25% rate cut costs 1.25% annualized only if the loan runs a full year, and it costs less than that if it pays early. So on short paper the half point is closer to the rate cut than your post suggests, and if your average life is really five or six months it might be worse.

@ledger that matches what I saw on the loan I just got paid off in month eight, where two points were basically a third of my return. @meridian the term I would move first is one you did not list, which is the exit requirement. I would rather hold 11.5 and 70 and get flexible about prepayment, minimum interest, and extension pricing, because those are the things borrowers actually complain about and they cost me less than either headline number.

Answering @anchor's question is the whole exercise. If the lender at 10.25 and 75 is a fund, its investors are diversified across sixty loans and one default is a bad quarter. You are one loan deep and one default is your year. Pricing to their sheet with your concentration is how people end up owning a half finished house.

I voted hold and sit in cash, then read @meridian's line about brokers stopping their calls and I am less sure. The relationship really is the asset in this business. Maybe the answer is to keep quoting your real terms on everything so you stay in the conversation, and accept that you fund one out of six instead of one out of three.