Mr. Goldstein,

You among most borrowers have to realize that rates will go up and down anywhere from .25-.375% on any given day.  Your lender should explain to you the volatility in today's market and give you the option to float or lock.  When yo ufloat, you gamble, however, when you lock, you are giving your lender a commitment to go forward with the loan.  Believe it or not, it costs money to lock a loan and you shoudl be loyal to your lender for spending the time and effort with you.  Furthermore, the deserate lenders out there, who are starving for business will easily "undercut" the next guy to get your deal.  This can go on and on and more times than not, you may lose in the end due to dishonesty.  If you commited with your lender, then show some loyalty and make good on your decision and commitment to lock.  As for the 10 Yr T-Note, this is a decent indicator but not nearly as good as the mortgage backed security prices.  Each lender will vary slightly in rate sand pricing.  5.375% is a good rate, especially with no points.  Stay loyal to the ones essentially working for free until you close.

Is your loan a conforming loan? If so, there are clearly defined adjustments from Fannie Mae and Freddie Mac with regards to credit score, type of property, amount of down payment/equity position, purpose of loan (cash out? purpose?).

Ask your lender specifically which "LLPAs" apply to your loan. LLPAs are loan level price adjustments - the exact charges we pay as lenders when we deliver a loan to fannie mae or freddie mac when it is anything short of absolutely perfect in regards to risk. a "Perfect" loan is usually a high 700s credit score, 30-40% equity, purchase, single family, $250,000 or more, etc. Obviously, there are a lot of loans that have slight imperfections (say, a score of 719, or a 2-family property, a very small loan size), but are still very viable for a lender. We pay a little extra, proportionally, to fund these and sell them to fannie or freddie, so we have to pass on these costs in some way or we would go bankrupt.

LLPAs are defined in points . . . one point is 1% of the loan. But if you have a total of 3.25% of llpas, generally the lender does not say: your rate will be 5% with 3.25% points. Many borrowers are not in a position to pay 3.25% of the loan in addition to closing costs. So, instead, the lender raises the rate so that the extra cost is absorbed over time in the form of a higher interest rate and the lender still stays in the black on the loan.

A good lender will be able to spell this out to you and give you the "3.25%" rate option as well . . . which you should find to be closer to advertised rates, though they will never match exactly due to locationally differences and live pricing.

Hope this helps . . .

I agree with both Stuart and Kelcey. You can call other lenders for a qoute, but to receive an honest and meaningful answer, you must give them your credit score, the LTV(loan to value) on your proposed loan, and the amount of the loan, as well as whether you are buying a primary residence , second home, or investment property. All of the forementioned combine to determine the interest rate.

First of all the term “no points” does not exist.  If you locked in yesterday on a conventional file that would pay between 3-4% yield spread premium depending on credit and loan to value.

I would ask for the lock in agreement if it really is not points.

P.S. I only lend in the great state of Florida.

Mr. Stuart Landry,

You mentioned being loyal to a lender. Well, if you look from the consumer's perspective, it is not viable in certain situations especially when the loan amount is large.

Say, one locks in with lender 'A' for say, 5% for 550K loan amount. In this volatile market, if the rate falls to say 4.8 in one or two weeks, the lender 'A' will not lower it because it is not more than .25% decrease. But if that consumer had locked in at 4.8%, he would save > $50 per month. It is substantial. In that case one may decide to ditch lender 'A' & go with lender 'B' provided there is still enough time to close the loan.

One thing to understand is that, no one likes to keep shopping around. For lenders it is a day to day business to deal with consumers & loans. But for consumers it is something they do a handful of times in their life & it cuts into their day to day life as well. So, in theory, one would like to lock in to something that suits them & expect the lender to give advantage of the situation if the rates go low.

In the end, its all numbers, $$, loyalty, honesty, good to speak,, but what wud you suggest we do as consumers in a situation cited above? Let go $50 every month for next 30 yrs to stay loyal to a lender whom we'll never every say even a hello in our life again?

If the customer is that worried about rates dropping significantly after locking in, than they should shop BEFORE hand for a lender that agrees to float down the rate for a fee rather than only if it were to drop 0.25%.  Not all lenders have the same rules regarding locks and float down policy.

Also, in most cases someone is not going to be paying on a mortgage for the full 30 years, I believe the average is 5 to 7 years.  But as you said, that could still add up if it's held longer.  Although it wouldn't be a rate of 4.8%, it would be 4.875% since a majority of lenders only offer pricing in 0.125% increments, which would be approx. $42.61 at that rate.

If we're talking about money being thrown away, what about the time and effort that Lender A has already put into the loan?  Also, if an appraisal has already been ordered and invoiced by Lender A to be paid at closing, who is going to pay for that?  It can be VERY difficult to track down those people to get the money for the appraisal.

Do your shopping around before choosing a lender, lock in a rate that you feel comfortable with, and move on.  I've seen many people who flipped because they were enticed by a slightly lower rate and than at the last minute find out it wasn't available, because it fell under the same LLPA's as the original lender quoted and by that time the home buyer is too tired and stressed out to argue and just wants to close.

Chidug,

There are a few things in your email that stand out to me.  First and foremost is the fact that you don't develop a relationship with your lender/loan officer over time.  It is very important in these volatile timnes to work with someone that you can not only trust but also deliver on what they promise.  Going to a different lender for every transaction only ensures that you don't get the best deal on the next transaction.  Second is the statement of ditching your lender over an 1/8th of a point.  Consumers need to understand that rates are extremely volatile and change multiple times a day in this market.  Also, each lender has a different pricing structure based on what it costs them to a) get the customer and b) close the loan.  Honestly I think that one of the changes this industry needs is to pass the cost of not delivering a locked loan onto the consumer so that they can understand how that affects our business.  Not only do we pay for not delivering that loan we typically get price hits on the next few loans for poor performance ratings.  So every time you "ditch" lender A you cost the next person an extra .25 to work with them.  Lastly, if you bought gas at a convenience store on Monday for $2.50 a gallon and on Tuesday it was $2.25 would you go to the clerk there and ask him to refund you the .25 extra you paid per gallon yesterday?  I don't understand how our industry is held to entirely different standards than every other industry.....just remember the cheapest is not always the best deal....if that was the case we would all be driving Yugos and DaeWoos.......

Also to keep in mind, when comparing national averages which take into account loans that are i.e. owner occupied, LTV 80% with 1% origination (point) not to compare that with a "no points" loan quote, as you cant have it both ways.....lowest rate AND with no points

Chidug, Bobby Downey is right on with his comments.  Ditching of the lener after they have committed to deliver your locked mortgage at the locked rate does cost the lender money since they are "hedging" the market and do not realize any income/loss on that hedge until the loan is closed.

Your reference to "ditching" the lender does actually cost the consumer since this expense gets factored into future rates that are offered.  Does the term "have your cake and eat it too come to mind".  When you (then consumer) choose to lock a rate you are protecting yourself from rate increases, not giving you the protection AND giving you a lower rate if it drops. 

When you call your stock broker to buy a stock that is trading at $50/share and when the order is processed it's current price is $50.80/share do you think you getting the $50 price....no it's priced at market when the transaction is executed.  Similar to Bobby Downey's gas comment, when that stock is then trading at $40/share are you asking your broker to give you a refund??  It's a fluid market and the consumer needs to remember that it's a "LOCK" and it was the consumer who chose and requested the lock.

It's a very difficult thing in our business and we don't have any control over which way the market moves but unfortunately we rely on our clients to make a commitment to us just like we make a commitment to them to provide them excellent service expecially since many of us are 100% commission and work with clients for 30-60 days and don't get paid anything unless your loan closes.

To put it in your "consumer perspective".....what if your boss paid you your $20/hr salary on the last day of each month.  But on the next to the last day of that month he laid you off (without pay) because someone approached him and was willing to do your same job (with the exact same qualifications) for $1 less per hour.  That wouldn't sit too well would it?  Well this is exactly the "ditching" thing you are talking about.  As you put it, $1/hr doesn't seem like much but it certainly does to your employer when you factor that it for an extended period of time.

In the end all we have is our "word".  Be fair, be reasonable and respect the time and energy that your lender has committed to you (without pay until your loan closes).

Bobby Downey:

Honestly I think that one of the changes this industry needs is to pass the cost of not delivering a locked loan onto the consumer so that they can understand how that affects our business.  Not only do we pay for not delivering that loan we typically get price hits on the next few loans for poor performance ratings.  So every time you "ditch" lender A you cost the next person an extra .25 to work with them.  Lastly, if you bought gas at a convenience store on Monday for $2.50 a gallon and on Tuesday it was $2.25 would you go to the clerk there and ask him to refund you the .25 extra you paid per gallon yesterday?  I don't understand how our industry is held to entirely different standards than every other industry.....just remember the cheapest is not always the best deal....if that was the case we would all be driving Yugos and DaeWoos.......

Amen, Bobby...and you get 5 stars!!!  It's about accountability.  It is your decision to lock the rate, with that, you take the consequence of sacrificing any possible lowering of the rates because you wanted the safety of rates not going up.  A lock is a lock.  A lock does not mean capped at this rate and if it gets lower than you get the lower rate. 

Chida,

In addition to the additional cost that is passed on to future consumers due to breaking rate locks, there is another effect that is rarely noticed or mentioned.  Why do you think some originators will lie to you regarding the rate and fee structure that they are able to offer you?  Maybe they see your transaction the same way; a one time deal.  What do they have to lose by telling you that your rate is lower than they can actually deliver today?  If they lie, they don't have to worry about you moving on to another lender if rates remain the same or if they go up.  If rates drop, they still can lie all the way to the table.  I mean, why would you go through the entire process again only to get the same deal; after all, you will only deal with this person once. 

Now do you see why there are some originators who decide to lie to their customers?  Do you see how your actions when multiplied can entice an originator to stop acting ethically and start by embellishing a little?  Many customers despise those originators but they perpetuate the problem by continuing to shop even after they have agreed to a rate lock.  Why should an originator be loyal to you if you are not loyal to them?

I see things very differently.  Maybe you and I will only have one transaction together.  Maybe we won't even do any business with each other at all, but I have closed many loans by receiving referrals to other people that would like to work with someone that they can trust.  I know that by being honest, I can earn more business over time... but some originators, like some people in any other arena, are willing to take shortcuts to make money today by whatever means necessary. 

Chida:

... to stay loyal to a lender whom we'll never every say even a hello in our life again?

Chida:

So, in theory, one would like to lock in to something that suits them & expect the lender to give advantage of the situation if the rates go low.

That is great in theory, but poor in practice.  Most of the lenders that do not offer a float down or renegotiation policy have the lowest rates on any given day. Those lenders that offer a rate slightly higher today, may offer you the ability to float down tomorrow.  As they say, "He who has the gold, makes the rules."  If you want or need the money that the bank is offering, you have to play by the rules that they have set.  Remember, borrowing money is a privilage, not a right.

Bobby, you hit that dead on! I explain that and explain that to clients, my sales team, my agents and other business partners. I am not sure why that is so hard to grasp. I don't know how many times I have had a client come back after 2 weeks saying they did not get what they were told from lender B quoting lower rates. I have heard it all but your explanation is dead on pal.