Lenders Jacking the Cost to Extend Locks
Rhonda Porter on 01 31, 2012
A lock extension is what is required when a loan does not close in the time frame as arranged with the original lock. Locks are available for 30, 45 or 60 days with the longer the period of time available for the lock, the higher the cost. So if you have a 30 day lock and for what ever reason, your transaction has not closed by day 30, you’re in a situation where the lock may need to be extended. It used to not be a huge expense if you were 1 day late past the extension, most lenders charged around 0.125% for an additional 7 days (extensions are typically offered in blocks of time, like locks).
Our government elected to pay for the Temporary Payroll Tax Cut by demanding a 0.10% fee on all new mortgages generated by Fannie or Freddie (conventional) and FHA. This roughly pencils out to an increase in rates of about 0.125% give or take. What some banks have also done, is to increase the cost to extend loans. Some banks/lenders are calling this “temporary” and others are not.
Here’s a sample from one lender who recently increased their extension fees for a second time!
For example, if you have a $300,000 loan amount, prior to the government’s “G-Fee” your extension fee would have been 0.125% of $300,000 = $375. After February 2, 12, with this lender your cost to extend a rate for 7 days is now a whopping $1,875.
Every lender has their own extension fees. I recommend asking your originator what the cost may be should you need to extend.
Other possible options to consider, depending on where rates are should your lock be expiring, is letting a rate expire and re-locking, if your lender permits. Lenders have different policies with that as well and it’s important that you discuss this with your mortgage originator.
About the Author: Rhonda Porter
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13 Responses to “Lenders Jacking the Cost to Extend Locks”
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How did I miss all of this? I am going to contact my mortgage guy here in Virginia to get up to speed!
It seems to me that that extra little fee (your other post) will not help stabilize the shaky home buyer market across the U.S. of A. What were they thinking?
Doug, it’s forcing consumers to lock a little longer, which also is a bonus for the big banks
I won’t expose the Too Big Too Fail bank who is cramming those fees down on consumers.
Of course, the problem is there are still a lot of boiler rooms/shady outfits that are quoting 30 day rate locks to make their rates look lower than the competition knowing damn well the odds of getting a refi done in 30 days are next to impossible on even the most perfect file – HVCC, over zealous underwriting, three day recission periods, etc.
Given the cost to extend under the new terms, that .125 difference in rate really is more expensive than getting an accurate rate quote to begin with assuming longer lock periods.
We can also thank the new LO comp laws too… No longer does the LO bear the burden of extensions.
I think it’s the clients choice for how long they want to lock, however they need to know what the cost to extend may be. Nobody *plans* on extending…but “extensions happen”… and now that a majority of the lenders have jacked the cost, it’s probably better to err on a longer lock period than risk an extension fee.
It is their choice, but that assumes they are truly informed of the risk. My experience has been that 99% of borrowers have no idea about rate locks. Further, the borrower isn’t going to know what is appropriate in terms of time frame needed to actually close.
it is their choice AND it’s a mortgage originators responsibility IMO to make sure the borrower understands how their rate lock commitment works and what the risk are.
Thanks for sharing this Rhonda! Since this is a choice, it is totally important that the buyer plans and studies every factor that is related with it. Yes, you are right, extension is always the least that any buyer would like to encounter. But most of the time, “situations” crop up putting them in a point when they have can do nothing but bear with.
Congratulations to this very interesting and timely post!
Thanks for the useful information, I agree that most of the borrowers does not have any idea about this, I hope that mortgage originators explain everything to them.
Oh no, another expense for home buyers. and the sadder part is that most of these buyers are not even familiar with this rate locks.
This is just absurd. Doesn’t anybody see that the regulation is the culprit? Regulators want a cut, so the banks passes the cost to the consumers. The consumers think is the bank’s fault so they protest against the bank and tell the regulators to do more. It’s a vicious cycle.
Happy to report that one of the big banks we work with is reducing their extension fees – not back to the previous levels (about 0.125% higher than what used to be the “norm”) — still a much welcomed improvement to the recent adjustments. Now lets hope the other big banks follow and reduce their extension fees too!
This is long done. FHA getting more expensive in April too
To those reading this blog, kudos. Rhonda is a legend, don’t pass up the opportunity to work with her
Thanks, Jonathan – you’re going to make me blush
I try to let folks know that even if rates stay low or go lower, the COST is getting more expensive.