June 18, 2001
"In refinancing my loan, I locked
the rate through a mortgage broker but the underwriter did not get to my loan
within the lock period and the lock expired. I was told I could close but I
would have to pay � point more. Is this a bait and switch? What are my
options?"
No, it isn�t a bait and switch. Locks
have been expiring in large numbers lately, but not because of gamesmanship by
lenders. Locks are expiring because the refinance boom is swamping lenders,
mortgage brokers, appraisers and escrow agents with more work than they can
handle. So some deals don�t get done on time.
The back offices of lenders are under
the most pressure. Lenders suddenly swamped with applications from borrowers
wanting to refinance have difficulty finding the experienced people needed to
break application logjams. And it isn�t good business to try to train
inexperienced people when the boom could peter out at any time.
The deals that don�t get done on time
are more likely to be refinances than home purchases. Lenders generally give
purchasers a priority. Delayed refinancings can be rescheduled, but not
completing purchase mortgages on time can jeopardize the deals, at high cost to
buyers. It could also jeopardize lenders� relationships with real estate
brokers, upon whom many depend for borrower referrals.
When they are solely to blame for delays
that cause lock expirations, most lenders will extend the lock for a day or two
without further cost to the borrower. If the lender was solely responsible for
the delay in your case, you have a legitimate cause for complaint.
Begin by asking in a pleasant way why
you should have to pay more when it was the lender who failed to get the job
done. If you don�t get a satisfactory response, you can register a complaint
to the lender�s regulator. You will find them at
Is
There Recourse Against Bad Servicing?.
But before you complain, make sure that
the lender was solely responsible �that no significant part of the delay was
due to you, or to the other parties involved in the transaction. It is extremely
difficult to assign responsibility for a lock expiration in a frenzied market.
Here are some questions to ask:
1. When you selected the lock period at
the beginning, did you ask the mortgage broker how long the lender�s
turn-around time was? Lenders usually report this to mortgage brokers every day
on their price sheets.
2. At the time you applied, did you make
all the documents needed by the broker or lender immediately available to them?
3. Were you available to answer
questions or provide additional documents during the entire period the loan was
in process, and did you respond in a timely manner?
4. Are you aware of whether your
mortgage broker did his job in a timely and effective manner? This is critical,
yet difficult for a borrower to assess. Deals from brokers who submit complete
and accurate files that minimize the time it takes the lender to underwrite them
are most likely to be funded on time. Deals from harassed brokers who take on
more than they can handle effectively, are more likely to languish in the lender�s
pile of incomplete applications. In such cases, the mortgage broker should pay
for extending the lock, and sometimes they do.
If borrowers accept responsibility from
the outset for the deal getting done, then it probably will. Give yourself a
comfortable lock period based on the lender�s turn around time. During a
refinance boom, it makes sense to add 15 days more than you think you need to
the lock period. This added assurance will cost about 1/8th of a
point, or $125 for each $100,000 of loan.
Get all your documents available so they
can be produced when needed.
Most important, stay on top of the
mortgage broker, who should be the key coordinator of all players.
If you know you did your job and it
still falls through, you will at least be in a position to know who didn�t do
theirs.
Copyright Jack Guttentag 2002
