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Locking With a mortgage Broker… What It Means

Written by: Gus Skarlis

Locking with a mortgage broker isn’t quite the same as locking
with a lender. In most cases the broker will follow your
instructions, locking with the lender when you tell him to.

Some brokers, however, will charge borrowers the lock price but
won’t lock with the lender. If the market doesn’t change, they
pocket the price difference.

Brokers rationalize this practice on the grounds that they
protect the borrower themselves. The broker plans to absorb the
loss if interest rates go against them. (In effect they’re
acting as speculators.) But what happens if interest rates spike?

Here’s an example.

For example, in the two-month period of late January to early
March 1980, rates on 30-year fixed-rate mortgages jumped from
12.88 percent to 15.28 percent. A broker who locked for 60 days
at 12.88 percent would have to pay a lender about 15 points to
accept a loan with that rate in a 15.28 percent market. The
broker would either go out of business, or deny that a lock was
given. (Broker locks are oral commitments.) The borrower would
be left high and dry in either case.

A broker “locks” is an unscrupulous practice because the
borrower is led to believe that the lender is providing the
lock. How do you protect yourself? Easy - simply insist on
receiving the rate lock commitment letter from the lender
identifying you as the applicant.

In principal a lock commits the buyer as well as the lender. A
borrower who wants to be protected against a rate increase
during the lock period, but would like to take advantage of a
rate decline, can purchase a “float-down.” A float-down provides
the same upside protection as a lock, plus an option to reduce
the rate if market rates decline.

Since it carries more value to the borrower than a lock, and is
more costly to the lender to provide, the borrower pays more for
it. A lender who charges 1.25 points for a 60-day lock might
charge 1.75 points for a 60-day float-down.

Many refinancing borrowers pay for a lock but act as if they
have a float-down. If rates decline during the lock period, they
demand a lower rate and if they don’t get it, they start over
with another loan provider. While that isn’t ethic, many people
do it.

Here’s my best advice in regards to locking: If you’re
comfortable with the rate you are receiving, go ahead and lock.

If interest rates fall, you may be disappointed, but the
interest you’re paying is at least something you have rationally
decided you’re comfortable with.

If rates rise, you’re protected from paying more than you might
be able to afford. And once you lock, get proof of the lock in
writing.

About the author:

Gus Skarlis is the only person in America that can get you the
best loan program, get you any vehicle at dealer cost, show you
how to correct your credit, beat any speeding ticket without
using a lawyer and save you money at the Gas Pump everytime…
You can find his infomational site at http://www.GusSkarlis.com
or you can contact him directly at 702-491-7251