USDA mortgage rate 6/25/13

I locked in my rate on 6/25/13 for a USDA loan at 4.825. I was following a few blogs and from what I understood from several lenders was, that rate was high for that day. I only had three weeks till closing so I had no time to find another lender but did receive a GFE for 4.625 the following day. My lender now says in order for my float down to be effective the ten year must drop to 2.298 which I don't believe will happen so I am stuck with the higher rate. He works for a direct lender and they said they would match or beat any lenders rate so if rates are lower why cant I take advantage of that? I need some advice because I feel like I got the old bait and switch,they were even with all my previous GFE from lenders then when it came time for me to lock all of a sudden they are higher.Is ther a way to find out if that rate was high for that day and what are my options now to get them to give me a lower rate? thanks

1 Answer

This is a daily question from many consumers. What many don't realize though is that once you tell your lender to lock you in and they do, they have now guaranteed delivering your loan to a servicing lender at that rate in X days. This lender then will pool your loan with others from the same time period/rates and then sell them on the secondary market to investors as Mortgage Backed Securites or directly to Fannie or Freddie which would do the same. If borrowers then see that the market has changed and now want a lower rate there are two options, a float down or you change lenders, start over and lock in again at the lower rate. If the lender loses your loan they have now affected what is called their 'pull through ratio', which means loans locked, but never delivered. This can affect a lender's future pricing if this ratio is low, hence most lender's will tell you once your locked, that's it, they cannot make a change. Many have float down options, which means if the rates have dropped enough to where current day pricing at the lower rate meets your original pricing/rate they can do what is called a 'float down'. This usually comes with a fee, why? you ask. Well, your lender is now going to be delivering a loan to the end investor at the lower rate vs the original. So, this lender (or Fannie/Freddie) needs to be paid for the 'lost interest' for the time period you originally guaranteed them at the higer rate. In essence the fee covers the lost interest. This cost still is nothing compared to your new lower rate over time. So, you should always ask if your lender has a float down option, regardless of the cost. This way you are locked in and know your worst case scenario the day you lock, and if you are lucky and the market really swings, you have an option of still getting a lower rate, with a cost, but at least you are not starting over with a new lender and possibly jeopardiziing your closing date.

Thanks, Dan