The One that Got Away: Bait and Switch?

HookI don’t mind losing a prospect (someone who’s shopping rates) to a fellow Mortgage  Professional, I do have an issue when I feel the shopper is being fooled or mislead by a loan originator.  Late last week, a "prospect" who had been asking for various scenarios kindly informed me that they decided to go to another lender who was offering a better rate.   Not a problem.   I do like to find out why and what was better than my Good Faith Estimate. 

The scenario:

  • 30 Year fixed rate/cash out refi
  • $417,000 loan amount with a home valued at 1 mil
  • No points (typically a point/1% of the loan amount equals 0.25% to rate).
  • No reserve account (this cost 0.25% in fee).
  • Full doc for a self employed borrower with excellent credit
  • No prepayment penalties

My Good Faith Estimate dated January 17, 2008 factoring in all of the above provided a note rate of 5.750% with an APR of 5.800% with total closing costs just shy of $2750 (title, escrow appraisal, etc).   Note:  I pride myself on having my GFE being as close to the final HUD as possible.  In fact if anything, I’d rather my estimate be higher to start with and have my client pleasantly surprised with lower costs at closing (instead of the alternative).

Nommag72008_3 The prospect selected another lender who’s quoting 5.25% with a total of $4,000 in closing costs.  I have searched all the lenders I work with and I have also checked out local credit unions.  I can’t find this anywhere!   5.25% may be available at a minimum of 1% discount/origination fee.  1% in fee would place the cost on this loan at $4170.  Then factor another 0.25% in fee ($1042) if the client opted to pay their taxes and insurance on their own.  How is the title, escrow and appraisal going to be paid?  This just does not pencil out. 

It smells a bit fishy to me and this type of volatile market may be tempting for some LO’s to "gamble" the market…betting (and praying, or should I say preying) that rates will improve to match what they have told a client they are locked in at.   It’s a pricey game that some LO’s make their keep playing.  As long as the LO honors the lock commitment to the prospect at what ever cost to the LO (in the event they lose big and rates don’t match what they’ve told the prospect they have), I have no issues.   If the LO begins to squirm should rates rise when they really have no lock at the promised rate…it’s foul play. 

Borrower beware.  I hope I’m wrong. 


  1. “It smells a bit fishy to me and this type of volatile market may be tempting for some LO’s to “gamble” the market…betting that rates will improve to match what they have told a client they are locked in at.”

    Rhonda – I realize this was a refi, but had this been a purchase, a smart Realtor would probably want to have their client ask the LO’s they’re working with to tell them about the specific lender and product they’re quoting…?

    Wouldn’t this help flush out the fakes? Help compare apples to apples, instead of apples to bananas?

  2. Hi Jason, According the the prospect, this was also a 30 year fixed rate. Why wouldn’t the prospect believe they’re getting an outstanding deal and that I (and ever other lender) is just charging too much? I don’t blame him for not wanting to pay to much…and I do hope I’m wrong. The “prospect” did not forward a copy of the other lenders GFE for me to review; which I’m happy to do to help rate shoppers sort out the figures. If someone else truly has a better deal than what I can offer, I gladly tell them to lock in that rate and to bring their GFE with them to closing.

    We’ll have to see what tomorrow’s rates are…if the LO is a gambler, they may win since I’m seeing that China’s and England’s markets are off. We’ll see what tomorrow brings for our markets and mortgage interest rates.

  3. I am like you Rhonda in that I don’t mind losing a deal to a true professional. We can’t get them all. However, it really irks me when it is just a boiler room hack shop pulling a bait & switch.

    With that said, there are some great deals out there for SPECIAL circumstances. For instance, I have a lender offering 5.375% on a 30 year fixed (NO POINTS mind you). In fact, it is paying me 3 points at that rate. I can make so much on the deal that I am going to pay my clients mortgage insurance premium so they don’t have MI! Of course, you have to be in a CRA tract to qualify.

    I would be surprised if that is the case since most of these special deals don’t apply to cash out refi’s. My guess is the LO is wrapping some discount points in the loan since it is a cash out and the borrower doesn’t know to ask if that is the case. Hopefully the won’t sign a the table.

  4. If the LO locked in early am yesterday, they may have won the bet…however if they decided to gamble a bit more…they’re hurting now! I’ve never seen such rate changes in the past few days. Again, I do hope everything turns out to be legit for the borrower and that it just smells fishy.

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