Make Sure Your Loan is Locked

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I’m taking a few days off and thought I’d share an post I wrote a few years ago (April 2008) at Rain City Guide.  It’s interesting how much higher the rates were back then. You can read the original post here

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.
 
UPDATE AUGUST 2011:  Once a good faith estimate is issued (since 2010), a bona fide “changed circumstance” is required before a loan officer can reissue or update it…locking your loan (going from a float to a lock) is considered a “changed circumstance” and if a Good Faith Estimate has not been issued, one is required within 3 days.  

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