Is the Lender Obliged to Extend a Mortgage Rate Lock?
June 18, 2001, Revised January 22, 2011

"In refinancing my loan, I locked the rate through a mortgage broker but the underwriter did not get to my loan within the lock period and the lock expired. I was told I could close but I would have to pay ½ point more. Is this a bait and switch? What are my options?"

Why Locks Expire


No, it isn’t a bait and switch. Locks have been expiring in large numbers lately, but not because of gamesmanship by lenders. Locks are expiring because the refinance boom is swamping lenders, mortgage brokers, appraisers and escrow agents with more work than they can handle. So some deals don’t get done on time.

The back offices of lenders are under the most pressure. Lenders suddenly swamped with applications from borrowers wanting to refinance have difficulty finding the experienced people needed to break application logjams. And it isn’t good business to try to train inexperienced people when the boom could peter out at any time.

The deals that don’t get done on time are more likely to be refinances than home purchases. Lenders generally give purchasers a priority. Delayed refinancings can be rescheduled, but not completing purchase mortgages on time can jeopardize the deals, at high cost to buyers. It could also jeopardize lenders’ relationships with real estate brokers, upon whom many depend for borrower referrals.

The Party Responsible For Delay Should Bear the Cost of Lock Expiration


When they are solely to blame for delays that cause lock expirations, most lenders will extend the lock for a day or two without further cost to the borrower. If the lender was solely responsible for the delay in your case, you have a legitimate cause for complaint.

Begin by asking in a pleasant way why you should have to pay more when it was the lender who failed to get the job done. If you don’t get a satisfactory response, you can register a complaint to the lender’s regulator. You will find them at Is There Recourse Against Bad Servicing? But before you complain, make sure that the lender was solely responsible –that no significant part of the delay was due to you, or to the other parties involved in the transaction who you selected.

Assigning Responsibility For Lock Expiration


It is extremely difficult to assign responsibility for a lock expiration in a frenzied market. Here are some questions to ask:

1. When you selected the lock period at the beginning, did you ask the mortgage broker how long the lender’s turn-around time was? Lenders usually report this to mortgage brokers every day on their price sheets.

2. At the time you applied, did you make all the documents needed by the broker or lender immediately available to them?

3. Were you available to answer questions or provide additional documents during the entire period the loan was in process, and did you respond in a timely manner?

4. Are you aware of whether your mortgage broker did his job in a timely and effective manner? This is critical, yet difficult for a borrower to assess. Deals from brokers who submit complete and accurate files that minimize the time it takes the lender to underwrite them are most likely to be funded on time. Deals from harassed brokers who take on more than they can handle effectively, are more likely to languish in the lender’s pile of incomplete applications. In such cases, the mortgage broker should pay for extending the lock, and sometimes they do.

Preventing Lock Expiration


If borrowers accept responsibility from the outset for the deal getting done, then it probably will. Give yourself a comfortable lock period based on the lender’s turn around time. During a refinance boom, it makes sense to add 15 days more than you think you need to the lock period. This added assurance will cost about 1/8th of a point, or $125 for each $100,000 of loan.

Get all your documents available so they can be produced when needed. Most important, stay on top of the mortgage broker, who should be the key coordinator of all players. If you know you did your job and it still falls through, you will at least be in a position to know who didn’t do theirs.

Read A Lock Statement For Lenders -- And For Borrowers
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