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.

36 thoughts on “Make Sure Your Loan is Locked

  1. huh?

    the people asked for a rate that was not available. the LO, sorry LO what does that mean? i know it means Loan Originator, but i thought we were passing laws against them. it’s like my bank teller telling me that they have 5.75% home equity money. it doesn’t mean anything.

    the lock is a snap shot in time that as i recall costs money in a volitile market. my loan guy calls me when it’s close to good, i pay the fee, and he locks. i like the fee because we exchange money. i like the money part. it establishes my time line. i said this he said that and there’s the receipt to prove it.

    OK were financing the whole thing, you got me. there again i e-mail daily for records.

    as for the attorney, come on, where’s the damages, how are you going to prove it, what if rates go down in the future, what if it wasn’t meant to be; come on.

  2. David:

    Your perspective seems unfamiliar to me.

    Laws have been passed, and continue to be passed and refined, that affect Loan Originators. Loan Originators work directly with borrowers, using wholesale rates, and are sometimes confused with mortgage brokers, although legally they are two different designations.

    Of course a LO should be able to quote and lock a rate, once they have gathered sufficient information, and if the information is subsequently verified, the LO should be able to deliver that locked rate. If the LO cannot deliver the locked rate, a written explanation should be provided (the lender has denied the loan, or some parameter that the lock was based upon was found to be wrong…usually property value these days).

    A rate lock does not require the borrower to provide money to the loan originator, but there are companies that do require that. Most companies that do require an advance payment for a locked rate do so to firmly plant a “hook” in the borrower, to prevent them from escaping. A lock agreement does not guarantee that rates stay the same in the future, it simply says that you have the right to that rate a certain number of days in the future, provided certain conditions are met.

    As far as damages. it shouldn’t have to come to that, but sadly, there are many loan originators, and loan officers (who work for banks, not brokers), that are desperate to tell the customer what they WANT to hear, rather than the unvarnished truth, and hope that what they have promised will appear in the not -to-distant future.

    The tactic is effective in a falling rate environment, and disastrous in a rising rate environment, and illegal in both. DFI (the Dept of Financial Institutions, responsible for regulating mortgage brokers, but NOT banks) requires that we prove, via rate sheets and lock agreements with the lender, that the rate we quote be ACTUALLY available at the time it was quoted (and for that matter, at the time it is advertised, but that is a different post), to prevent such a scenario.

    It may be difficult to win damages in such a case in court, but it certianly could not hurt to complain to DFI about a misrepresented lock agreement, and costs nothing but a little time.

    Of course, you should continue to do what works for you, but be aware that perhaps better alternatives exist. I don’t usually hear people say they “like the fee”, but to each his own, I suppose. I usually use e-mail to head off the “he said she said” dispute, as it date stamps what was agreed upon and when (didn’t work so well for the OK Raiders :). I recommend that borrowers insist on the same. Any honest and reputable LO would gladly do so.

  3. Hopefully borrowers won’t need an attorney. However, if a LO has lied to either
    1. obtain a client by stating they have a rate that they don’t or
    2. did not lock in a rate that was available because after telling the client they were locked because they wanted to gamble the market and make more on the back end.

    This happens when a borrower is using an unethical LO and/or when the borrower is chasing rates.

    David, what if you were buying a home requiring a full jumbo mortgage and you shopped two LO’s (play along w/me here)…LO-a tells you the rate is 6.375% and LO-b tells you the rate is 6.125%. You select LO-b. LO-a is stunned because they work with several banks and thought they had a very competitive offer. They doubt the rate is legit however, the buyer probably thinks LO-a just has sour grapes for not “winning the bid”.

    LO-b is instructed to lock in that rate and she does (or says she did). Now all of sudden at closing, she’s back-peddling and claiming the loan is going to take a few more weeks to be approved (it’s a 30 day closing)…

    Meanwhile, rates in the true Jumbo market have gone up dramatically–almost 1.5-2% to rate depending on the day. This buyer has a non-refundable earnest money of $15,000.

    LOb lied to the buyer in order to “win” the deal with a false low rate on the GFE and told the buyer they were locked.

    The buyer may lose the house and the earnest money.

    The seller is not willing to negotiate.

    As a buyer, David, what would you do? Take of your realtor(r) hat and put yourself in their shoes. Shouldn’t the buyer be able to trust the LO if the LO told them they were locked? If you had a written rate lock confirmation and you just lost $15k plus “the home of your dreams” and 30 days in transaction… would you contact an attorney? DFI?

  4. David, by the way, I’m glad you brought up email. I would recommend that any borrower use email with their LO when they are locking in their rate so that they have written record of the conversation. Still do get a written Lock Confirmation from the lender as well.

  5. OK, you’re moving up my estimations about the Rain City Guide.

    Loans are on-line every day, not to the public, but to a mortgage person. Correct me if I’m wrong, but everyday a mortgage person can sit down at the computer and pull up loan programs. One day I counted sixty two loan programs that worked for a situation I was in. My lender showed me.

    Now there are rates, and terms, if I understand this correctly. I don’t follow it because like the people in your example I tell my lender what I want. He tells me what he can give me.

    So, to my mind every loan person gets the same products every day on a sheet. You are very correct that Loan Originators lie to win a bid. It’s happened to me many times. I send my buyers to one mortgage guy, have for over twenty years, and the buyer comes back with a “better” offer.

    At closing the Loan Orginator can’t deliver. The Good Faith Estimate is just an estimate, it says so at the top of the page.

    As a buyer I would lock the claim of a lower rate, and I would pay for the lock at the time. As I also understand it many mortgage people tell clients it costs money to lock a loan so they can “float” the loan. I would say great can I pay now?

    So yes a confirmation is a good thing. I’ve never seen one, but it seems like a good idea.

  6. David, what if you received a lock confirmation believing the loan is locked (as it should be) and it’s not? The LO gambled that rates would get to that point (or better) and lost…thus losing the rate for the buyer and possibly the earnest money and the transaction.

  7. Jillayne, with the scenario in the comments, I believe it’s a broker (yes, that’s a real scenario) and I’ve advised the borrower to contact DFI.

    With the scenario in the post, I’m assuming it’s a bank since that’s what the borrower refered to the lender as. However, they are not in WA State.

  8. I have been there. I don’t really understand the back end of the mortgage business but understand the mortgage rep was getting an extra “point?” on the back end that also didn’t materialize.

    He didn’t lock but generated paper work saying he had. He was floating. The buyer paid the higher rate. OK, on to bitching, moaning, and complaining, the lender made the best effort they could. How long was I supposed to fight the lender and hold up the transaction.

    My question again is what are the damages? How do you prove damages? How can anyone gaurantee that the rate my buyer got wasn’t the best rate available and the rep was incompetent, incapable, or insane at the time he was making representations? In my case the rep just disappeared, so the lender said.

    What about the value of having a deal as opposed to walking away, for both the buyer and seller?

    It’s a slippery slope in Real Estate.

  9. David,
    If the LO generates paperwork that states they locked in a loan at a specific interest rate and they do not provide it–this isn’t floating and is far from making “the best effort they could”. The LO lied and gambled with the buyers trust and money. The buyer could have gone to another LO but believes the piece of paper provided from the lender.

    How do you prove damages?


    In the example I mentioned at #4 the buyer just needs a written lock confirmation. And if I were the buyer, I would want a written explanation of what happened from the LO. The LO could lie and say that the buyer didn’t qualify…it would just take a second opinion from another LO to state they are easily qualifed.

    If this ever went to court, the underwriting findings and lock documentation would support whether or not the loan was locked/buyer approved.

    The losses are huge in the example I mentioned.

    Non-refundable e.m. in the amount of $15,000. This is if they walk away.

    Rate difference of more than 1.5% on a 600k loan is a difference of about $750 per month. Not locking in the rate (when they say they have) could cause the buyer to be disqualified. This is if they stay and close.

    Either way…they lose.

    Why should the buyer suffer these losses because a LO gambled the lock and did not do what they represented to the buyer and provided a signed agreement stating they would?

  10. Sorry,

    Going to court costs me $7000, minimum. That’s just the time to get ready to go to court. Then there are the attorney fees, I can’t even guess how much that would be, but my attorney wants a two to five thousand dollar retainer. Then there is the researcher to get evidence that something happened the way I claim it did.

    Does that make sense?

    My objection was that you brought in the opinion of an attorney. The attorney could not tell you that there is a cost factor of litigation because it’s not his place to say what is or is not a lawsuit, let alone go into the costs. Court action is a gamble stacked against the professionals. In theory the Broker should have known what the Loan Originator was doing. The broker is the one who has to pay.

    There is mediation, arbitration, and some mortgage association something. All in all that’s probably three years before you get to court and then the judge kicks the case because you should have settled in arbitration/mediation.

    Now for my soap box; i don’t think Loan Originators did as much damage to our national economy as Real Estate agents did. How about a buyer paying $430K for a property worth only $360K. By the same principles you pointed out here shouldn’t the Real Estate agent be liable for the additional $70K phantom equity? Shouldn’t the Real Estate agent be also liable for the monthly payment on the phantom equity?

  11. David, I’d spend $7k to keep my $15k. And it may not even be 7K.

    I think Craig’s information is valid and drives home the point, which I’ve been trying to make to you, GET YOUR LOCK IN WRITING.

    As far as agents selling overpriced homes…unless someone paid cash, there was an appraisal to back it up with comps of possible other over priced homes. I think that proposed lawsuit would be more difficult to win than that of a written lock confirmation agreement that was never honored.

  12. When an LO locks a loan, he should be insistent that he get a lock confirmation from the lender. The lenders all provide it, and I make sure to get it, in writing, from the lender, as soon as it’s available (some are instant, some take a day or so to deliver).

    I believe the borrower has a right to have a copy of that document, as soon as it is available. I do not think that requirement is in current law, but it is the best protection that a borrower can get to protect themselves from a loan originator (bank or broker), lying about locking the loan. Again, the lock is not a guarantee that the loan will be approved.

    I do not know of any circumstances where a wholesale lender requires a fee to lock a loan, except for locks longer than 60 days. I would shy away from anyone that requires the fee up front, as it is just a tactic to ensure the borrower does not walk away without a loss.

    Borrowers need to find a loan originator that will agree to act in the borrowers best interest, disclose their compensation fully, and disclose any conflicts of interest. Fortunately, the new law in WA state requires that standard from all loan originators working in the wholesale channel (brokers), but not from loan originators that work directly for banks.

    Finally, while I appreciate that everyone generally acts in their own economic interest, to do only that is not enough to create and maintain a just society. We must ALL do more, and if that includes occassionally spending more time and money on achieving justice than it pays back, then we must ALL make that sacrifice. Brushing off and ignoring illegal behavior essentially rewards illegal behavior, and ultimately creates more of it.

    That helps no one but the criminals.

  13. Roger, it looks like your earlier comment just showed up (I hope I didn’t miss it). 🙂

    Most lenders I work with charge an extended lock fee at 90 days which I don’t encourage borrowers do either. The non-refundable fee at 90 days may be around 0.25% of the loan amount, is due at the time the loan is locked and is non-refundable regardless of why a loan is cancelled (it goes directly to the bank). Plus, the longer the consumers lock is, the more expensive it is to have that rate so it could be a double whammy.

  14. Rhonda:

    Funny, I was sure that my earlier words were lost, proving the axiom that talk is cheap!

    I really cannot think of a situation that I would recommend a 90 day lock. If my borrower wanted a rate locked for 90 days (because the borrower has supernatural powers that tell him that rates will be worse in 90 days 🙂 ), I would simply figure which 60 day lock was best, with a lender that had a good extension policy, then factor in a 30 day extension!

    Gosh Rhonda, how will we survive when all of the crooks are run out of this business? 🙂

  15. Roger, there will absolutely be less LO’s around…and I’m glad that many of the bad fish are being weeded out of the pool. There will be some good guys that decide to call it quits too.

    I have no plans of calling it quits and I believe this is a great time for Mortgage Professionals as there will continue to be less and less LO’s due to

    1) not passing background checks/licensing
    2) less programs – lack access to FHA and/or not willing to learn new programs
    3) not capable of finding new biz
    4) frustration
    5) over-regulation (sorry Jillayne…I think DFI is going too far by sweeping all correspondent lenders up and forcing us to obtain consumer loan licenses…they should have excluded those of us who all ready obtained mortgage broker licensing).
    6) increased expenses to operate mortgage companies (see #5)

    With all that said, I agree 100% with you Roger. 🙂

    Re: a 90 day lock, probably the only time to consider one is if the builder/seller is paying for the upfront lock…however I truly believe that if this is the case, you know it’s factored into the sales price so therefore, the buyer is still paying for it.

  16. You and Jillayne should come to one of DFI’s hearings about the Consumer Lender Act. Should prove to be interesting! There is one in Bellevue on May 13th.

    While I agree with Jillayne on many things, I am concerned about the rush of conflicting rules and regulations, and a lack of an overriding principle and goal.

    It’s as if the all 50 states and the federal government were allowed to dictate exactly how the new Boeing Dreamliner is to be built.

    Sure, it would be safe for passengers, but would it fly….?

  17. Hi Roger,

    I have RSVP’d to DFI for the May 13th Mortgage Broker Commission Meeting. We should try to get a seat close to the front or near an isle. It will likely be a full meeting.

  18. The last Mortgage Broker Commission Meeting I attended was a PACKED HOUSE…Larry Cragun and I wound up holding up a wall in the back of the room standing the entire meeting.

  19. I RSVP’d as well. I’ll try and get there early…I am imagining a scene like getting in line for concert tickets for Hanna Montana…

    Other than increased costs to correspondent lenders for licensing, which presumably get passed on to borrowers, what are the ramifications of this to the mortgage broker/correspondent?

    It’s not that I am too lazy, it’s just that correspondent lending and the Consumer Loan act are not an areas I have had to become expert about…yet!

    Is anyone writing about this?

  20. My post that I referenced abofe really just includes the basic info from DFI and WAMB’s response for missing this “oops! We trusted DFI and didn’t use our atty’s to review this”….I like seeing my WAMB membership funds at work.

    Should this topic be moved to Jillayne’s recent post re: Mortgage Brokers and Correspondents instead since this one is intended to be on lock confirmations.

    Don’t get me wrong, it’s a good conversation however it’s “off topic”.

  21. Rhonda, I’ve started a thread over here on the new state laws affecting mortgage brokers and consumer loan lenders:

    In terms of locking a rate, depending on how the entity is licensed, the borrower has different routes to take in order to seek help with a resolution. Surely starting with the company, it’s managers and owners is always the best path. There is ALWAYS a way to honor that lock, even if it means the money will come out of the loan officer’s pocket, or from the branch office profits. I would suggest working with the company OWNER if the company manager is not responsive. Then, if that company is a member of a trade association, I would file a complaint with the trade association. For example, WAMB is promoting “lending with integrity” on their website. Just exactly how is wambie helping consumers such as this one? I would want to find out, if that particular institution was a member of wambie.

    If that company was not a member of a trade organization, then the next step would be to complain to state regulators if it is a state-licensed company.

    I have listened to MANY STORIES from loan officers who played the market, didn’t lock the loan, and rates went UP.

    LOs who play this game get burned very easily. LOs only get caught in this trap once and they never do it again, IF they are asked to pay the difference.

    If no one holds them accountable, they will continue to play with other people’s money.

  22. i’m sorry you didn’t take the opportunity:

    Loans are on-line every day, not to the public, but to a mortgage person. Correct me if I’m wrong, but everyday a mortgage person can sit down at the computer and pull up loan programs. One day I counted sixty two loan programs that worked for a situation I was in. My lender showed me.

    Now there are rates, and terms, if I understand this correctly. I don’t follow it because like the people in your example I tell my lender what I want. He tells me what he can give me.

    So, to my mind every loan person gets the same products every day on a sheet. You are very correct that Loan Originators lie to win a bid. It’s happened to me many times. I send my buyers to one mortgage guy, have for over twenty years, and the buyer comes back with a “better

  23. David, if a LO tells a buyer that they are locked in at 5.5% at zero points and your buyer believes them, as they should be able to…only to find out that they are not locked–never were and that 5.5% at zero is not available no matter where they look on the internet.

    Borrowers should not “trust” that their loan is locked unless they have a written lock confirmation from their lender.

  24. I applied for the mortgage refinance and got lock rate agreement with broker on last week of May with 45-days locking period. I have previously done refinance
    with this broker so they had all the information. One of the issue this time was LTV > 80%, the broker told me that I will qualify for DuRefiPlus program and will
    not have to pay extra (I have this in email). My credit score is > 740 and I have no history of late payment and my income is also not an issue.

    Last week broker notified me that Lender has decided not to close this loan because they do not want to participate in DuRefiPlus program (supposedly my LTV was 85%).
    I offered them to put extra payment to bring the LTV < 80% and go with regular refinance process. However broker is saying lender will not close it and I would have to wait
    for the rates to come down again. His explanation was as following.

    “I have exhausted every avenue regarding the rate lock and have gotten a final answer that they will not close the loan because
    they have decided not to fund loans tied to that program. The private investor has many concerns regarding being able to resell
    the loan once it is funded and they have decided that they cannot risk having these loans in their pipeline.”

    Can anyone tell me what are my rights here? Can lender or broker back-out on Locking Agreement? The rates I locked was 4.75% (30 yr. fixed) with one-time float down.
    I cannot go with any other lender now because this month rates have shot up to 5.5% for 30-year fixed. I am thinking that Broker may not have hedged the rates by locking and is trying
    to get out of the agreement. My locking agreement expires in first week of July.

    I would really appreciate expert advise on this matter. I do not want to incur losses because lender has decided to change the mind.

  25. Sam:

    Sorry to hear of your troubles.

    We loan orignators do not generally like to make excuses for other loan originators.

    However, the Obama Refi DU plus, or whatever we agree to call it, has rolled out in a herky-jerky fashion. Lenders have issued conflicting guidelines, reversed course, and have been a little hesitant to jump in with both feet, to say the least. It has been interesting AND frustrating for loan originators. Added to that, the flow thru the system has been severely hampered by high volumes, and the extra attention to details on every file.

    Request that your broker provide you with a copy of the lock agreement he made with the lender (the bank), and have him show the denial from the lender. That would show he has made an effort.

    Still, it IS possible that your broker did not do what he directly said he would do (lock the loan). If he did do it, he would have written proof, and should be happy to provide that proof.

    If he didn’t, you may have a case.

    As far as a broker or any lender honoring a lock agreement? We’ll, a lock agreement is not a commitment to lend money, and a file still has to be approved by an underwriter. They cannot guarantee that the loan will be approved.

    It’s been a lot of work getting these done in the past few months!

    I’m not complaining, happy to be working productively!!

    Best of luck to you.

  26. The reason I received for cancellation of the loan is “not enough collateral” because apparently LTV was > 80%. I offered to put additional capital to bring the ratio down but they would still not proceed with it. Does that make any sense? If the only reason for cancellation is LTV, Do I not have a choice?

  27. Greetings:

    I have an unusual problem. My re-fi began in Jan. 09. Everything required by B of A was submitted. My closing doc’s were received on June 3, 2009. During review I discovered that they reduced my Equity lind down from 765,000 to 250,000. I found errors in their reporting. I tiold them I would accept the lower Equity line if necessary but I did not want to lose my rate and terms as well as I did not want to go through a re-appraisal and explained this.
    Now they say I have not choice even though they admit the long time and their incorrect disclosure was their fault.
    Any ideas?

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