Loans Answers

Locked in at 7%?

Question: I hope somebody can help me with this dilemma, as my buyer/broker is very inexperienced and cannot help.

I applied for a 30-year, 3 points, fixed rate mortgage. Then, I locked in the 7% rate – I sent in a check for $1,000 and a letter saying I was locking into this rate. I never received confirmation from the mortgage company, but they deposited the check.

A few weeks later I was told by the loan officer that the underwriter they had sent my application to declined the mortgage. They sent it to another underwriter and it was approved. However, since this is a different underwriter, they said I couldn’t get the 7% rate and locked me in at 7.625 (telling me I should be grateful that the morgage company gave me an eighth extra off the rate.

Needless to say, I was very upset. Do they have a right to do this? Have I been taken advantage of? Also, the rates have gone down a bit since then. We are closing August 31, and I wonder if they COULD possibly give me a the lower rate, or if it is true that their hands are tied at this point.

One more piece of information….I originally applied for the mortgage on June 20. Then my loan officer went on maternity leave and I think the people who were to take over my account forgot about it and didn’t submit it to the underwriter until July 27 or 28 – giving the underwriter one day to make a decision. After that underwriter promptly declined the application, my originial loan officer got involved again. After the loan was approved by the second underwriter, the loan officer explained that I wouldn’t get the 7%, but that she would give me the best rate that came up between the time the loan was approved and the time we closed. However, there is a clause that states that if you haven’t locked into a rate within 15 days of closing, the mortgage company would automatically assign the rate quoted on that day, and that is basically what they did. They called me on August 17 to say the rate was 7.625 and I’d better take it because rates weren’t going down.

Thanks a lot for reading this. If you can offer any advice I’d really appreciate it!

Answer: It’s too late to help you, but as a mortgage broker, I have a few questions. Why on earth did you pay three points up front? Who recommended the lender, or did you just pick a low rate out of the ad? Was there anything unusual about your loan (bad credit, high ratios, lots of gift for down payment)?

If all of this had happened over the course of just a few weeks, I would say it’s not TERRIBLY unusual. Sometimes a wholesale investor (who underwrites the deal) will offer a great deal on rates, but have very stringent underwriting standards. So you may actually have been declined by the investor offering the great rate. But the time period screams that mortgage lender incompetence or dishonesty is involved. I would ask for the original declination notice from the original underwriter (not retyped on the mortgage company letterhead).

But beyond that, your best option is to file a complaint with the regulatory body that issues mortgage brokers licenses in your state. The only way for the borrower to avoid getting screwed is to get a written quote at the time of application, including the broker’s profit margin (revenue, mark-up) and a copy of the wholessale rate sheet. Obviously it’s too late for the borrower here. Even if he is a poor credit risk, he should have been informed of the reasons for the higher rate.

I could write a book with the 100 best excuses mortgage brokers can come up with to justify a higher rate. Usually they “low quoted” to get the borrower’s application. What good would that do? If a mortgage broker was wiley enough to bait and switch he/she would surely come up with a smooth-sounding reason why the rate disappeared. The only better way to document the process is to lock in your rate AT APPLICATION (don’t be greedy and float) and get a written lock-in letter from the broker which names the wholesale investor. Or better yet, submit TWO applications with different lenders; lock one and float the other.

There have been a few times when a wholesale lender who was offering an aggressive rate declined my borrower; I then had to get him approved elsewhere at the “market” rate, which may have improved or worsened during that time frame.

Folks, despite what the other poster would have you believe, some of us mortgage lenders are actually honest workers who want you to refer your friends to us. If you ask for things in writing and if you call the state to see if there have been any complaints against your lender, you have a good chance of being well taken care of.

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