If rates rise, the broker takes a reduced profit
or even a loss. Or the broker can delay things until the rate lock
Sophisticated brokers can play this game and leave
the borrower none the wiser, says Bill Lavigne, a consultant who
audits mortgage companies for compliance and licensing issues. "Now,
many argue this isn't possible and it's not done because it's against
the law, but I have seen it with my own eyes dozens of times,"
Lavigne adds the lying-about-the-lock trick doesn't
happen as often as it used to because brokers are being regulated
more closely. However, regulations vary greatly from state to state
-- and some states don't regulate mortgage brokers at all.
Trust, but verify
Brokers are middlemen who have access to many sources of credit
and can pick out the best available deals for their clients, whatever
their credit histories. A loan officer at a bank has fewer sources
of credit to choose from. About 70 percent of borrowers get their
mortgages through brokers.
To keep your broker honest, tell
the broker upfront that you want to see a loan-commitment letter
as soon as possible after you lock.
The letter should have your name and the lender's
name, and it should specify the interest rate, any points and rate-lock
fees, the date the rate was locked, and how many days it will be
If the broker balks, walk, Lavigne advises.
Jim Bradley, president of American Residential Lending
Corp. in Atlanta, is always ready to produce the loan-commitment
letter. First, though, comes the rate-lock sheet, which is not the
same as the loan-commitment letter.
"I have a form that I make my borrowers
sign," he says. "The form says that they acknowledge that
their options are one of two things -- they'll either float with
the market, and they'll check that and initial it, or they'll lock
in. They'll check that and initial it."
If the borrower chooses to lock a rate, "I tell
the folks in order to get this to you in writing I will fax the
lender and get a commitment."
Bradley asks for a check to pay third-party fees
for items such as credit reports. He then gets to work finding a
lender and locking in the rate and terms. When he does, if the borrower
wants to see the commitment letter, it's there in black and white.
Lots of brokers quote rates and terms over the phone. A rate quote
over the phone is not a rate lock.
Sometimes brokers are whipsawed by rate changes beyond
their control. Bradley makes house calls, and when he offers to
lock in a rate and terms, "I tell them, 'Look, what I'm telling
you now is subject to whatever the rate is when I get back to the
Occasionally, Bradley drives to his office only to
discover that lenders have raised rates in the middle of the day.
He calls the client back.
"I tell them, 'I'm sorry, the rate went
up between the time I saw you and got to my office, and that's what
I'll have to charge you," Bradley says.
Then the borrower has to decide yet again whether
to float or to lock.