Did you know that a locked rate is a commitment for a loan to be delivered to a lender?   Mortgage companies and loan originators are often judged by how many loans they deliver or what their lock fall-out ratio is.   A normal expection used to be around 70-75% of locked loans to be delivered–now I’m hearing reports of 30-40% of locked loans actually being delivered to the lender.  

This is dangerous for mortgage brokers and correspondent lenders.  Why?  Wholesale lenders are cutting back and “cherry picking” which companies they’ll work with.   A significant factor is lock-fall out.  If odds are, a locked  loan is not going to be delivered, why should they work with that mortgage company?    

Sometimes the wholesale lender may be ordering the mortgage company to be “cut off” of future business and sometimes it may be the wholesale lender having their Account Executives that they need to reduce their client base to a certain amount of accounts (as a way to reduce the commission they’re paying the AE’s). 

There can be many reasons for a locked loan not to be delivered, such as:

• the loan could not be approved because of the property (appraisal issues) or the borrower.
• private mortgage insurance issues.
• the borrower decides not to proceed with the transaction.

Here’s how one wholesale lender rates fallout:

• 0-24.99% = Full approval.
• 25-34.99% = Monitor
• 35-49.99% = Watch
• 50-74.99% = Probation
• 75% or more = Inactivated.   Good by wholesale relationship with that lender.

Wholesale lenders don’t care if it’s due to the borrower not proceeding with the refi or if it was their underwriting that “killed the deal”…it often counts towards that dreaded lock fallout ratio.

A disturbing trend I heard from a local title insurance company is “double applications”.  Where a borrower is proceeding with a refinance transaction with two different lenders.   If both loan originators have the loan locked, someone is going to lose!   Not to mention, the expense to the title and escrow companies who are working on a transaction a consumer is not going to honor.   The only way this is caught, is if the title or escrow company happen to be the same one that the two loan originators the consumer is using.   Regardless of if both loans are locked or not, it’s unscrupulous behavior.    

Borrowers–please do not have two loan applications going on at the same time with two different loan originators.   When you do decide to lock in a rate with a mortgage professional, understand it IS a commitment.