Should You Lock ASAP?
July 12, 2010, Revised January 22, 2011, January 17, 2012

The Case For Locking ASAP

“Mortgage interest rates are currently at record lows, and it would seem that they couldn't possibly fall any lower. Would you recommend, then, that borrowers obtain a rate lock as soon as they begin the process of shopping for a mortgage?” 

Two days after receiving this letter, rates dropped another 1/8%! Nonetheless, the writer’s major point, that when rates are at historical lows there is much greater potential for rate increases than rate decreases, is valid. And that was a good reason for locking ASAP in 2010 and early 2011.

But locking ASAP is usually a good policy regardless of market conditions, because it may prevent a larcenous lender from cheating you, as indicated by the experience of this reader.

“While comparing two lenders, the first lender sent me the GFE and TIL and locked us immediately upon receiving the memorandum of terms of the house purchase. The second lender gave us a rate quote via e-mail that was 1/8% less than that of the first lender for the same lender fees, so we cancelled our lock with the first lender.  

But then the second lender told me he needed the signed purchase contract before he could lock, which took one day. Then he told me he needed additional verification of my income, which took two more days. Next he told me that he needed an appraisal, which took more time. By the time he was prepared to lock, the market had changed and both the rate and fees were higher than those offered by the first lender. We had no choice except to close with the second lender.”  

This reader locked immediately, then walked away from the lock because he thought he could do better, only to learn (at considerable cost) the difference between a price quote and a price lock. His experience suggests another reason why it is a good idea to lock ASAP:  lenders who deliberately drag out the lock process may be playing with a stacked desk.

The lender who won’t lock until he has all the data is positioned to cheat. He can “low-ball”, quoting a price below what he can deliver and to which he cannot be held, the intent being to snare the borrower. He can then raise the price when the borrower is committed and it is too late to back out. In all probability, the second reader was ripped off in that way.  

 Determining Whether Lock Delays Are Reasonable

Honest lenders will not always provide an immediate lock to any loan applicant. Because locking imposes a cost on the lender, no lender wants to lock a loan that is unlikely to close. If the initial information available to the lender indicates that the borrower may not qualify for the requested loan at the posted price, the lender won’t lock. In that situation, the borrower must decide whether the lender has a valid reason for delaying the lock, or is using delay as a tool for gaining a strategic advantage.

There is only one reliable way to answer that question, and that is to determine whether the lender offers an objective method of disclosing its loan prices. If a price is communicated orally, or in an email letter, the borrower should assume that the lender is trying to game him with the delay.

On the other hand, if the borrower can find her price on the lender’s web site, there is no strategic advantage to the lender in delaying a lock, because the borrower can check any future lock price. It may be higher or lower than the price on the day a lock was first requested, depending on which way the market has moved, but it is the correct price on the day the loan is finally locked. Providing such pricing objectivity was a major reason I developed the Upfront Mortgage Lender certification.

If you are dealing with a loan officer who can’t give you a same-day lock, and if you can’t price your loan on-line, you should shift the burden of proving objectivity to the loan officer. All loan officers today have computer access to the lender’s posted prices and can print the page showing your price. Ask for that page on the day you receive your initial price quote – it will be your assurance that you have not been low-balled. And ask for a commitment that you will receive an updated version when your loan is finally locked.

Such objectivity in pricing disclosure should also come into play in the event that a price lock is nullified when new information received by the lender invalidates the information on which the lock is based. That happens occasionally when an appraisal comes in unexpectedly low, or there is a hit to the borrower’s credit score. In such case, the burden should be on the loan officer to document the validity of the new price.

Bottom line, “LOCK ASAP” is a good rule but it should be accompanied by another rule applicable when there are lock delays : “MAKE THE LENDER DOCUMENT YOUR PRICE.”  

The Best and Easiest Way to Get the Correct Price

Use the professor's Certified Lender Network (CLN), which did not exist (except in his mind) when this article was first published. Borrowers can be confident they are getting the  right price, no matter how long the lock is delayed, because they have continuing access to the lender's pricing system without loan officer intermediation. See Why Shop Here: Certified Network Lenders.

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