Expired Mortgage Rate Lock

by Shauna from Oregon, USA

Expired Mortgage Rate Lock: Hi Kate, My husband and I decided to take advantage of the low mortgage interest rates to refinance our home from a 30 year fixed rate mortgage to a 15. We both have credit scores above 800. The house appraised at 245,000 and we only owe 152,000.



Shauna continues... We were quoted a 3.5 rate and a good faith estimate of closing costs that we agreed to. We have provided all the necessary documents to the lender in a timely manner. We also paid a $500 lock fee.

Now, after repeatedly phoning our lender and not getting any return calls, it appears our lock will expire. Do we have any recourse? This lender has failed to perform through no fault of ours.

This was an easy no-brainer refinance. Apparently if we walk away from this deal, we will lose $500. I feel so ripped off and I'm wondering what we can do about this?

Kate Answers: Expired Mortgage Rate Lock

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Dear Shauna,

If I took every letter with a similar story about expired mortgage rate locks, I could wallpaper my entire house. I find this very disturbing.

There are a couple of reasons for such irresponsible behavior on the part of some banks.

Scenario 1 - Mortgage Rate Locked

If mortgage rates go up after locking but the bank does not get the loan closed and sold in time, they lose money. "Better the homeowner loses their lock than the bank suffers a loss" seems to be the theme.

Scenario 2 - Interest Rate Never Locked

Now sometimes, the interest rate is never locked even though the homeowner was told it was. If rates continue downward, the bank and/or loan originator profit. (Think gambling.)

But if mortgage rates increase... Oh-oh, now there is a BIG problem. At this point, many originators (or even the bank itself) begin to drag their heels. Solution? Shift the blame. Find a problem here or there and whaddaya know. The homeowner receives a phone call that the loan can't close in time to save the mortgage rate lock.

Protect yourself. The best way to get out of the dark is to understand the facts found here at Yield Spread Premium - Say WHAT!

What To Do About Expired Mortgage Rate Locks

So here's what you do. Make copies of your mortgage rate lock agreements (all pages) and your entire good faith estimate of mortgage closing costs. Create a time line of your loan process.

If walking into the loan company is possible, your appearance will create the most attention. Otherwise, overnight the package and request a return receipt including a signature that it was received.

Send a copy of the same package to your state's authority, usually the attorney general. You can find this information on your state's website, in your case Oregon.

Don't forget a factual cover letter including your contact information. Be sure to include your desired outcome.

In the meanwhile, here is information on 15 year fixed rate mortgages, the best way to pay off your house.

Shauna, one more thing about your expired mortgage rate lock. I'd like to hear the outcome.

Comment here on Expired Mortgage Rate Lock. Or Ask Kate another question here.

Best wishes,

Ask Kate


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Lock in Failed
by: Anonymous

I just wanted to state that I had a similar issue which ended up costing me a lot of money. About 3 years ago received a lock in, in writing and about a week from closing the broker said that the lock in could not be honored because the bank no longer offered the loan at the rate I had locked in at. About a day before closing my rate went up by 2 points leaving me little time for recourse.

Also I am currently refinancing with a LARGE bank (one of the largest in the country). They gave me a 60 day lock in but the process keeps getting delayed by the bank.

For example they wrote the contact for a house even though they were informed that it was a condo (more than once), they have also sent me the wrong GFE document. Although I have been responding to them with 24 hours, it has been taking them close to a week to respond back to me and longer to correct any errors they have made.

I am now approaching the end of my lock in so I can only hope that they are going to follow through. I have contacted the bank the loan was through but all they do is apologize and then tell me that only the person who is currently working on my specific loan has access to the files so they cannot help me. The person who is working my case has never picked up his phone when I have called. I always have to leave a message hoping that he will get back to me.

Hi, Kate here.

I hope you will follow the steps on this page (see above). To call this behavior unprofessional would be an understatement.

Any borrower shopping for a lender must first read Understanding the Good Faith Estimate Form before locking-in their mortgage rate.


Best wishes, Kate

Actually....
by: Anonymous

As an employee at a small brokerage, I know that my boss frequently bet on rates dropping and didn't lock when he said he had. If they went the other way, the loans didn't close. Period. I don't know what the hedging practices of the wholesaler was, but I didn't have a lot of control over their priorities. Another reason for holding off when locking (this was at a retail originator) was to keep from losing the client if rates dropped after locking. If you put off locking, you didn't run that risk.

Note from Kate: Here's the thing. Those mortgage rate locks are attached to a loan that finances a home which often represents a life time of dreams to the borrower. This is why I tell my Readers to get copies of their signed rate lock agreements - in writing - and read the fine print. Thanks so much for your comment. Kate

Expired Mortgage Rate Lock
by: Mortgage Pro In Seattle

Kate, I read your advice on a regular basis as I follow you on twitter. I want to comment on the rate lock issue, because I believe that your comments were off the mark.

Your answers were:
1) Scenario 1 - Mortgage Rate Locked
If mortgage rates go up after locking but the bank does not get the loan closed and sold in time, they lose money. "Better the homeowner loses their lock than the bank suffers a loss" seems to be the theme.

My comment: typically, once a loan is locked, it's hedged, so the interest rate risk you're describing isn't really an issue. This comment really doesn't hold water.

Scenario 2 - Interest Rate Never Locked
Now sometimes, the interest rate is never locked even though the homeowner was told it was. If rates continue downward, the bank and/or loan originator profit. (Think gambling.)

My Comment: This makes no sense from the originator's perspective. Under the new GFE disclosure law, the amount of money an originator can make is locked in at the time of the intial GFE disclosure. There is no room for the scenario you describe above in terms of the lender "gambling" with the interest rate.

The other possibilities that seem much more plausible to me, based on recent experience is:
1) how long of a lock period was the original lock for? Most lenders are quoting 30 day lock pricing, but underwriting/conditions turn-times got extremely slow in the August thru November period. With a 3 day rescission period, a 30 day lock is actually a 27 day timeframe, then you have to factor in holidays. If a lender is operating on a 6 business day turn-time for underwriting, then say 3 days for conditions, once you order the appraisal and get it back (typically 7-10 days) you've got a very tight window to close the loan. With many lenders, a 30 day lock is simply not reasonable if you are locking before you've got the documentation from the borrowers. Recently, I've experienced some legitimate appraisal issues that came up after we got the appraisal back; it went in front of the appraisal review department. Things got a bit tense, and ultimately the issues got resolved, but it took an extra 10 days and we had to extend the lock.

Also, you've got to consider whether the loan was a brokered loan or not. If it's brokered, and there is a need to re-disclose, you lose another 3 - 5 business days. (Had a loan where we reduced the loan amount by $50, so it would qualify for the rumored change in mortgage interest deduction) and that pushed back the closing for a week.

There are simply more moving pieces in the loan process than ever before, more things that can prevent the loan process from moving forward perfectly. You have to build in the unexpected into the closing process. In many cases, a 30 day lock is simply not a reasonable timeframe. Even though it typically costs an 1/8th more to price, you're better off in a 45 day lock.
Thanks for highlighting length of locks. Your borrowers are lucky to have you. Kate

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