Settlement Statement: Is the interest rate of the Note disclosed on the form?

It is routine for escrow departments of title companies and independent escrow firms to provide a Settlement Statement to a loan officer (and agents) prior to making appointments with clients to sign their paperwork.   Once loan documents are received by escrow the closing staff move to get this accomplished as quickly as possible.  This is done for a variety of reasons but mostly to assist in ironing out any discrepancies prior to meeting with the client.

If you reconciled a “yes,” the interest rate is on the Settlement Statement, you are correct.   So, where is it:

  • Line 901 of the Settlement Statement
  • If a borrower has a loan, it is on Line 901 to calculate interest (see screenshot)

Can this be missed even after escrow receives a HUD approval “green light,” “all OK,” “call the borrowers to make an appointment?”   Unfortunately, yes.   Hopefully this post will assist consumers and those in the business that were unaware that this is on the Settlement Statement and to prevent situations where escrow is meeting a client at their home at 8pm to sign docs and hear the client remark, “this is not the rate/program we were quoted.”

Interest rate on HUD

Make Sure Your Loan is Locked

I’ve been communicating with a home owner who thought their loan was locked in at a certain rate only to learn that this is not the case.   Here’s their story:

Their existing ARM reset in March.   In late February, they informed the LO they wanted to lock at  5.5%, no points, 30 year fixed, and close before April 1 and the LO said it was reasonable and doable.  The appraisal was complete in late March with a LTV 79%.  The LO did not lock in at that time.   The LO presented a GFE 55 days after the application was signed and not the program that was agreed on…the LO admits he dropped the ball but cannot fix it with his bank.

Ouch.  Big ouch. 
Part of the problem that I can see by reviewing rates I’ve posted is that in late February (at least on Fridays) rates where in the high 5’s with 1 point.  So a borrower could easily tell a Loan Originator, “this” is the rate I want you to lock me in at…and if that rate does not happen at that time, the LO will most likely not lock the borrower since this is what the borrower has instructed the LO to do.
For the LO to tell these borrowers “reasonable and doable” was a stretch. Reasonable, maybe but in this current market when we’re averaging two rate sheets/changes a day: almost anything and nothing may be reasonable and who’s to say what’s doable unless you’re the dough fronting the mortgage.  The appraisal should not have been ordered without the borrowers consent.  The LO could have easily told the borrowers, your rate has not become available, should we order the appraisal (worse case, borrower is out a couple hundred dollars) or would you like to wait to see if your rate becomes available?   The Good Faith Estimate being presented almost two months of application is inexcusable.  
Hindsight is so clear and you can see the warning signs about this transaction skidding down the wrong track. So what can you do to try to make sure your loan is actually locked?
Obtain a written Lock Confirmation.   Your lock confirmation is not a guarantee.  I’m sorry…I wish it were.  If the information you provided on your application, your credit scores change (expired credit report), the appraisal comes in lower; may impact your interest rate and thus the lock.   Once you request a lock from your LO, or they say your locked, get it in writing!   If you don’t receive a Lock Confirmation by the following day, contact your Loan Originator to find out when you will have one. 
I have recommended that this couple contact the LO’s supervisor…but here’s the challenge:
If the LO told them they were indeed locked, the bank might try to honor (eat) the lock, as they should.  Based on today’s pricing, buying that rate would cost an additional 2 points.  However, without documentation of any sort (no email or lock confirmation), it will be challenging to prove that the LO promised or committed to this rate.  It’s your word against theirs.   If the borrower stated, I want “x” rate at “y” cost and these factors never happened…the Loan Originator is off the hook.  The LO cannot provide what is not available (specific rate/cost).   It’s an expensive lesson.
But what if the borrowers rate/cost was available and the LO committed to locking in that rate?  Mind you, rates can and do change even while they’re being locked–which is very frustrating.  In that case, the LO should contact the borrower immediately to let them know there’s been a change for better or worse (usually better is no problem).   Again, assuming the rates available and the LO either screws up and doesn’t lock the rate or tells the borrower it’s locked when in reality the LO is “gambling” the market.   What can the consumer do if they discover their rate was never locked?  I contacted fellow RCG contributor and attorney, Craig Blackmon regarding if there’s any recourse for someone with an unhonored written lock confirmation (assuming the program is still available and the other factors I mentioned above that may impact a lock):
Here’s Craig’s answer:
That would depend on the “written lock confirmation.”  If that document constitutes a binding contract, then yes the borrower would have a breach of contract claim against the party to the contract for the difference between the promised rate and the actual rate.  Even if the document does not constitute a contract, the borrower might still have a negligence claim (i.e. a malpractice claim) against the LO if the LO failed to exercise a reasonable degree of skill and care in attempting to lock in at the promised rate.  In either event, the borrower’s recourse would be against the LO (I think — again, I would need to see the “confirmation” to confirm in regards to the breach of contract claim).  
Bottom line, be sure to get documentation of your lock in writing.   Lenders should provide lock confirmations with an updated Good Faith Estimate if the rate or cost have changed from the last one provided.  If something smells fishy and they’re no cooperating or stalling, it’s probably shark.  Oh…and last but not least, I don’t recommend chasing a rate.  If you like the rate, lock it or be prepared to lose it.

Extensions: When Your Time is Up With Your Lock

When you lock in a mortgage interest rate, it is for a specific period of time, such as 30, 45 or 60 days. Your mortgage professional should make sure it is for an adequate amount of time to close the transaction. If it’s a purchase, the lock may be for a few days after the transaction and if it’s for a refinance, 30-45 days should be plenty of time in a “normal” market for the lock period. Purchases, depending on the type of transaction can be closed from two weeks or more (or more is preferred, less can happen too).

If you run out of time on your lock, it needs to be extended or the rate is no longer available (if rates have increased). Extensions, like locks, vary in price based on how long thebuytime extension period is. Sometimes, if rates have improved or are the same, the lender may offer a “no cost” extension-that always makes me happy. 🙂 When rates have worsened, you can count on a cost for your extension. Every lender has different costs. As a Correspondent Lender, we work with many lenders and they all have different costs and policies for extensions. Some will allow us to extend for a specific amount of days; for example if we only need 3, we can have a 3 day lock at a prorated cost. Others bracket the days and so if we need 3 days, and they bracket extensions 1-10 days, we’ve paid for 10 days.

Here’s a few examples of extensions offered by a few of the lenders I work with. The cost referenced are in fee as a percentage to the loan amount. If your mortgage is $400,000 and we are working with Lender A below, your extension rate would be 400,000 x 0.015% = $60.00 per day.

Lender A offers a daily extension at a rate of 0.015% per day. They allow me to re-extend if I did not extend long enough the first time (most lenders do not allow this…you go directly to worse case pricing).  

With Lender A, the difference between a 30 day and 45 day (original) lock period today is 0.165%; extending for 15 additional days (if you locked 30 days and needed up to 45) is an additional 0.225%.

Lender B offers extensions in brackets:

1-5 days = 0.063%

6-10 days = 0.125%

11-15 days = 0.188%

16-20 days = 0.25% up to 26-30 days = 0.375%

With Lender B, the difference between a 30 day and 45 day lock today is around 0.298%. Extending for 15 days with a 30 day lock is 0.188% based on locking today.

Lender C offers various options:

If your extension is within 10 days of your lock expiring and short term pricing has improved, they offer a 15 day lock at no cost.

If current pricing is worse than the locked rate, then you have the option of fee based pricing based on the expiration date:

5 days = 0.125%

10 days = 0.25%

15 days = 0.375%

30 days = 0.500% (purchase)

30 days = 0.500% (refi)

Lender C also offers market based pricing based on extending the lock from that date (instead of the expiration date of the lock) factoring in the current market.

When you extend on Lender C’s site, a LO has a couple of options they can select from based on how much time is needed and what is the lowest cost.

The difference between a 30 day and 45 day lock (currently) is 0.096% vs. having to extend after 30 days for 0.375% unless the market (rates) have improved.

Here are some possible reasons why a lock may require an extension:

~ Loan Originator did a short lock (less than 30 days or less than what was indicated for closing on the purchase and sale agreement).
~ Mortgage company did not perform in a timely manner.
~ Borrower did not provide documentation in a timely manner or caused delay in transaction.
~ Seller caused a delay in the transaction.

My personal opinion is that who ever caused the extension to be paid should be the party responsible for paying it. Often times, the delay may be unintentional but it happens. It’s crucial for borrowers to understand that once a loan is locked, a clock is counting down the days left for closing the new loan. On the occassion that I need to extend a loan, I review the transaction to determine why we ran out of time.

When I lock in a loan, I would rather have a few extra days than go short on the lock period. The cost of the next longer lock period is often less than what an extension may cost. The key is to make sure the loan is locked for the correct time frame to start with. Your Mortgage Professional should provide you with a Lock Confirmation that will disclose when your lock will expire. It’s important to confirm that your lender has allowed enough time for the transaction with the lock and to address the “what ifs” in the event the transaction does not close in time. With an extension, you are simply buying time.

How Well Do You Know Your Mortgage?

I was at my massage therapist yesterday (I was in an auto accident last July) and she was “talking mortgage” with me because she thought I find the conversation relaxing. 🙂  She recently was in the process of going through a refinance (with someone else, aahhhh…even more soothing) and discovered she has a prepayment penalty of $7,000 on her current mortgage.   She called off the refinance even though it could save her a couple hundred dollars a month (she may not keep her current residence for long, so this may not be a good move for her…I do not have all of her financial details, so I cannot provide a professional opinion).

Apparently her original lender never disclosed her prepayment penalty; at least she does not recall such a discussion.    She was very surprised with how little she knows about her largest debt.   She’s not alone.

I’m challenging RCG readers to make sure you understand your current mortgage.   I double dog dare you to dig up your Note (this should be with the inch thick stack of papers you received at your signing appointment) and confirm:

  1. What is your interest rate?  
  2. How is the mortgage amortized?
  3. Is there a prepayment penalty?   

Is your mortgage an Adjustable Rate Mortgage?   I have some additional questions…just for you:

  1. What is the date that your mortgage scheduled to have the first rate adjustment?
  2. How will your new rate be determined?  (What is the margin and index).
  3. How much can your mortgage adjust when the fixed payment period is over?
  4. How often can your mortgage adjust when your fixed period is over?
  5. Do you have deferred interest or negative amortization?

In light of all the press mortgages are getting these days, this is a good excuse to brush up on yours.   Just like my Massage Therapist, your Loan Originator may not have fully explained the details, or maybe you were so caught up in purchasing or financing your home, all those numbers slipped by.  It happens.

It’s up to you to make sure you are massaging your financial future to work in your best interest.   You can always contact your previous Loan Originator and have them explain your mortgage in fine detail or find another Mortgage Professional to help you.     

5 Steps for Shopping Mortgage Interest Rates

[photopress:693_kick_tire.jpg,thumb,alignright]What?  I’m writing about something I don’t agree with in principle?  True.  I think that many people are spinning their perfectly good wheels in order to try to find a rate they cannot have unless they’re prepared to lock at the precise moment they are shopping.  But, the practice of rate shopping and kicking the tires of Loan Originators appears to be a necessary evil in the mortgage process. 

Here’s my advice, if you feel you must shop rates.

Step 1:  Contact at least three different people you trust financially and ask for referrals.   I suggest family members, friends, co-workers, your real estate agent, CPA, Financial Planner, etc.   Ask your sources what they liked and did not like about their Loan Originator.   Gather their contact information and visit their web sites and blogs, if they have one.  

Step 2:  Prepare your personal financial story.  You’ll need to retell the exact scenario to each Loan Originator so they can each provide you a rate based on the same information.   If you just want to see how skinny someone will quote a rate to you, you can make up a vanilla story of “I’m putting 20% down on a $500,000 house.  My mid credit score is 700 and I would like a 30 year fixed rate with no origination or discount points, please.  I would like the loan priced with a 30 day lock