Refi: bait and switch or mistake?

We locked a rate for a refi about a month ago.  Beforehand, my lender and I had discussed and agreed on a rate to lock at 4.625% (no points).  When we received the paperwork the next day, the rate shown for the Lock-In confirmation (and new good faith estimate) was actually 4.25% (no points).  I assumed at the time that maybe rates had suddenly changed for the better, or our credit was better than expected or something.  I hand-delivered the signed paperwork, and my loan officer made copies for me after checking them over quickly. 

I didn't think about it again until we were at closing last night and saw the rate shown in this paperwork was actually 4.625%.  We had to cancel the closing when seeing the wrong rate.  Talking to my lender today, he says there was a mistake in our rate lock-in confirmation and estimate paperwork and that he had actually locked the rate at 4.625%.  He implied that I had been dishonest in not mentioning the difference before signing the paperwork, even though it would have been their mistake.

If this is actually a mistake, I can understand his difficult position, but I feel the contract should be honored, and don't understand how nobody in his organization would have discovered this before now if it was a mistake.

How can I ensure that I receive the rate that was promised to me in writing, and also ensure that I can close before the lock-in expiration date of 09/08?

Thanks for your advice.

Wow, what a problem! 

Everyone is human and can make mistakes.  If you both agreed to 4.625%, I think the honorable thing to do is accept the 4.625% regardless of the rate lock agreement you received in writing. 

That being said, you could consult a lawyer regarding the 4.25% rate lock agreement you signed and returned to the lender.

I wouldn't say that you were dishonest in any way, but it does surprise me that you never asked about the difference between the verbal agreement and the written agreement you received.  A 0.375% difference in rate is a huge move and you did admit that the verbal agreement was for 4.625%.

While you MAY be able to legally force the lender to honor the rate lock by consulting an attorney and putting it through the paces, it certainly will not happen in a few days time. If the rate on your loan was 4.625%, 4.25% is not a rate that can be honored without the bank literally paying thousands of dollars out of pocket to fund.  

For instance, just as an example - if I were to lock a 30 yr fixed loan today of $250,000 for 4.625% right now, and suddenly have to honor 4.25% . . . I, as the loan originator, would have to personally pay out of my own pocket about $5500 dollars just to get it to the closing table . . . never mind paying my overhead, expenses, cost of servicing an undermarket loan, etc. Most loans are sold in market rate pools  . . .more about this in the blogs on this site . . . and 4.25% is so far under the market rate that some investors may not even be willing to buy the loan.

4.625% to 4.25% means that someone missed a single keystroke. Were the rest of your documents (your application, your disclosures, everything except your rate lock agreement) correct at 4.625%? It is certainly questionable that no one caught it on the banking side . . . an unfortunate error, and one that I am sure your loan officer will never make again, haha . . .but if the rate lock confirmation (which is hand typed in many institutions) was the only paper that carried the error and all other papers were correct, I can see how it may have happened.

Do not let me discourage you from speaking to an attorney - you may be able to do just that, and make some headway . . . but my guess is that it will cost you more than you would save, and that the lending institution is not in a position to honor a rate that is that much lower than anticipated.

Perhaps your loan officer can make a concession for the inconvenience, such as paying for your appraisal or discounting your costs? This is much more realistic in terms of what he or she has the power to do.

I, too, am surprised that you did not mention the difference if you noticed it - wouldn't you rather have had confirmation at the time rather than having to cancel a closing?

I don't know if you would have called the LO up and shewed out if the rate had been higher by .375%, but you did not call and (thanked) when you saw it was .375% lower, that is for sure, nor did you appear to have any conversations with your LO during the interim.  Were you aware you could have signed the contract and during the 3 day right of cancellation, called your lender for an explanation?.  Since you received the disclosures "....the next day" did you wonder at all what major market event triggered a large .375% reduction in a matter of a few hours?. 

Your rate appears to have been very favorable, especially considering you had (no points) and the LO is this tough enviroment was able to get you to closing within 30 days. 

By way of fairness, and if your considering seeking legal represtation, ask your self if you were quoted and agreed to 4.625% and the LO did successfully get you approved and to closing in time regardless of (self admitted mistake by your LO)......what was your FINANCIAL LOSS???

P.S. regarding your lock expiration of 9/8 (Refinance) your going to miss that one too!.  If you were signing docs today you would have Friday 9/4 and Sat 9/5 and Tues 9/9 midnight to cancel as Monday (holiday) does not count, based on signing today, your loan would fund 9/9.........

If the rate is 4.625% on a 30 year fixed with no points I would move forward ASAP. 

First some more background and then the current status:  It wasn't just the one lock-in rate sheet with the wrong rate, it was the recalculated good-faith estimate and some other supporting documents.  This rate was for a 5/1 ARM, with lender purchased PMI.  The same day I agreed to our 4.625%, I received a late quote from a different lender for 3.75% with .75 origination and up front FHA MI, which would have been a lower monthly payment.  As a consumer, I don't have an easy way to gauge what is a typical rate for lender-paid pmi, but in my mind at the time as a somewhat ignorant consumer (I bought my first house last year), 3.75% vs 4.625% seemed to me like a big difference, and so 4.25% didn't seem too far-fetched and maybe even more in line with the norm. 

If it were one sheet of paper typed up in a Word Doc, I might acknowledge it as a simple mistake, but when it's shown in multiple places on different documents, that are final paperwork for a home mortgage, and that I've personally handed back to him for him to review, I assume them to be accurate.  Additionally, my personal common sense assumes that when he enters a rate into a system to provide me a fully worked-up final estimate, then this is the same system used to actually submit a rate lock, or at least it would be done by the same person at the same time. From people's comments, it sounds like maybe this isn't true.  (why isn't it?)

Current status: After several sessions of tense discussions over the phone, he eventually agreed to honor the 4.25%, apparently after talking with a supervisor.  We are supposed to have another closing this evening, so I am hoping that all works out.

Louis (or anyone): could you explain further about the lock expiration and loan funding timeline? My impression from him was that they would be able to fund the loan ok.  Now that I think of it, I remember him mentioning something about the latest he'd be able to extend the lock would require us to close friday night (today).  I guess the loan can only be funded 3 days after closing to allow us the opportunity to cancel, and he would have had to extend the lock expiration date? 

I can see how a consumer would assume that the rate was now less than what had been quoted based on the paperwork received.  If the rate is put into one document incorrectly it automatically pulls into all of the other documents in the loan origination system.  The lock agreement usually comes from that system.  Often the lock is done in a different system that doesn't auto populate from the loan origination system and that is where a mistake can occur.  Now it's compounded when the documents going to the consumer aren't carefully reviewed with the lock.  I would bet that most loan originators who have been in the business any length of time have either had it happen to them or know of someone that it has happened to.  It's likely that your loan officer will earn 0 on the loan or may have to pay to close your loan.  Last week I had a loan officer in my office pay $1,475 to close a loan that he misquoted.  It's the cost of doing business and I call it additional books and tuition.

The loan must fund by the lock date so that is why there is an urgency to signing.  Since it's Labor Day Weekend and you sign Friday then your rescission days are Saturday (Sunday and Monday don't count), Tuesday, Wednesday and the loan funds Thursday. 

Apparently your LO will be paying for a lock extention.  So, is your loan FHA? (so as to compare apples to oranges as you mention lender paid PMI and on the second quote you mention FHA MI (actually both UFMIP and Monthly MI)....also do you plan of staying in the home 5 years or less? if not why give up 3 years of "certainity" for 5 years of certainty?

Louis

Thanks for the clarification. Ok, on a 5/1, at least 4.25% is possible - albeit tight, depending on your loan amount and the cost of the LPMI. The loan officer probably forfeited his or her paycheck . . . and might have had their next pay check hit for a deduction . . . but not by so much that they will be working free for 6 months. He or she will never make that mistake again, I can assure you.

If that number (the 4.25) was widely populated, then yes, someone should have seen it . . . but most underwriters and processors are coming off 6 months of 80 hour weeks due to the drop in rates, and EVERYONE is tired - even the most cautious are going to make a mistake now and then. As Bryan said, cost of doing business - and if it is possible (as it is with a 5/1 at the moment), they can and should honor the rate. . . . but it is an expensive mistake.

Depending on the way the institution is run, locking a rate is a very different process than doc'ing a loan. In my set up, for instance, I am pricing each loan live - there are hundreds of moving pieces and dozens of secondary market investors pricing pools of money. I am not simply going to a board, looking up, and saying "yup, the rate for the day is 4.5%" or whatever. In some institutions, the loan officers are one step removed from this and they are getting this information filtered from someone else at the lender - but someone is dealing with it.  Banks do not simply lend out their own money and wait 30 years to get it back. They would run out of money if they did that - they'd have to take a 30 year vacation and come back and collect. They make loans, underwritten in many cases to the national standards of fannie mae, freddie mac, or FHA (HUD) . . . then they pool these loans together and sell many of them to secondary investors (who can afford to wait to get paid) for a premium so that they can recapture the money to relend. Sometimes they continue to do the work of "servicing" the loan - that is, collecting and applying payments - so it looks like you are paying them back directly - but in reality, only a small percentage of loans written by any institution is actually held in that institution until it is repaid in full. Some do not hold any at all.

SO . . . a few things happened here, most likely. The loan officer/institution is getting hit by an investor for failing to deliver a locked loan - locked at the wrong rate, or at the wrong price . . . the bank or lender is faced with the possiblity of having to hold your loan and not "reliquidize" by selling it . . . and no one is going to make any money for having done the loan - tough pills to swallow.

If the institution is honoring a rate .375% lower than it should have been, close and don't look back. You are getting heck of a deal.

As far as the three days . . .

Law states that on a REFI of your PRIMARY RESIDENCE you have three FULL BUSINESS days to cancel a loan BEFORE it can be recorded by the lender. This harkens back to days when sleazy sales/notary people would knock on unknowing customers doors and tell them that they had to sign or their house was in jeoprady. It is more of a blessing than a curse.

SO . . . if you close today . . . SATURDAY COUNTS (Sunday and Monday holiday do not) then Tuesday, Wednesday . . . first day that the loan could fund or record would be Thursday, by law.

If the bank is honoring today . . . someone is also paying a rate lock extension fee. . . . probably .01%-.03% of your loan amount each day . . .this is a real cost.

Sign away.