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Rate-lock anxiety rises with mortgage rates -- Page 2

If rates rise, the broker takes a reduced profit or even a loss. Or the broker can delay things until the rate lock expires.

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," he says.

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.

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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 locked.

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.

Change happens
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 office.'"

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.

-- Posted: March 14, 2005




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