January 16, 2025 • 24 mins
In today’s competitive mortgage industry, understanding rate lock management is essential for every loan officer aiming to deliver top-notch service and close deals with confidence.
In this episode, we dive deep into the art and science of rate lock management. Learn how to navigate fluctuating markets, communicate effectively with clients about rate options, and avoid costly mistakes that can derail a deal. Whether you're a seasoned professional or just starting out, this episode will equip you with practical strategies to master rate locks, build trust with your clients, and boost your overall success.
Tune in for actionable tips, real-world examples, and expert insights that will help you stay ahead in the ever-changing world of mortgage lending.
📈 Ready to lock in your expertise? Hit play now!
Join The Mortgage Calculator at https://themortgagecalculator.com/join
About The Mortgage Calculator:
The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as over 5,000 Non-QM mortgage loan programs using alternative income documentation!
Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!
Our team of over 350 licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as access thousands of mortgage programs using Alternative Income Documentation such as Bank Statement Mortgages, P&L Mortgages, Asset Based Mortgage Programs, No Ratio CDFI Loan Programs, DSCR Investor Mortgages, Commercial Mortgages,
Loan Officers for Unlimited Free Non-QM Leads & Trainings Join The Mortgage Calculator at https://themortgagecalculator.com/join
The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as thousands of Non-QM mortgage loan program variations using alternative income documentation!
Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!
Our team of licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Restream recording Jan 16, (00:00):
Now, as everyone knows, a rate lock
(00:04):
is an agreement between lenderthat allows the borrower to lock
in the interest rate on amortgage for a specified time
period at the prevailing marketrate and provides the borrower
with protection against a risein interest rates during the
lock period.
very important during these veryvolatile times right now.
(00:28):
Now, interest rate risk is therisk that the market interest
rate will rise, which will causea decline in the value of the
instrument.
Now that's really more for the,um, for secondary.
And the pull through rate is thenumber of our loan applications
that are closed and funded bythe lender versus the total
number of submitted loanapplications over a set period
(00:50):
of time.
So we really want to make surethat we close We now we all know
what interest is, but what arethe factors that affect interest
rates?
Well, Federal Reserve, right?
Open market operations.
We've seen it happening rightnow.
(01:10):
Last couple of days, we'relooking at inflation.
Now, in the last couple of days,inflation risk went down.
Some CPI numbers came out, uh,lower than expected.
So the market has, uh, reactedpositively and the rates have
gone down.
So today's a good day to lock,by the way.
(01:32):
Um, you know, we've, we've goneover this and other trainings on
how do, um, what are theconditions that affect
inflation?
Interest rates, right?
So we all know we got to keep aneye on that 10 year, see where
it's going to keep an eye onwhat the Fed has to say, um, so
that we can have an idea and beable to consult our borrowers.
(01:58):
So, well, we really, what arethe challenges?
With rate lock management.
This is really what I wanted toget into here.
So market and interest ratevolatility.
That's what we want to control,right?
Because what can happen if youdo not lock that file in?
Let's say you disclose the fileat 7 percent and the DTI was 49
(02:25):
percent on a convention aloneand the borrower qualifies.
Okay.
But now, all of a sudden, youdid not, um, lock in the file as
soon as the disclosures weresigned.
And as soon as a file wasregistered onto the portal,
which is when you can lock, youcannot lock the file in as soon
(02:45):
as the loan application is takenbecause the file does not exist.
On the investors portal.
We have to wait till the file isdisclosed intake registers the
file on the portal, and thenyou're going to request your
rate lock.
As soon as you, this is a nondelegated files, by the way, if
it's a brokered file, you'regoing to be submitting and
(03:08):
disclosing and all that kind ofstuff and, um, you, you're going
to request the rate lockyourself via the portal of the
lender where you're submittingthe loan.
If it's non delegated.
Uh, you request the lock, um,through encompass and our, our
live desk will go and processthat, uh, rate lock request as
(03:31):
soon as the loan exists on theportal of the investor, which is
why some of you may get theemail.
Your lock request has beendenied.
Because the customer hasn'tsigned the disclosures yet and
intake has not completed the,um, the registration of the loan
on the portal.
(03:52):
So you got to wait till thatfile exists in the portal.
But once it does, that's yourgreen light that you can lock it
in at that moment.
You do not have to wait till theappraisal comes back a week or
two weeks later.
To lock it in because, you know,with the amount of volatility
that we're having right now inthe market, if you wait one day,
(04:18):
it could be too late.
Right?
So if, um, it's ready now andthe customer is happy with the
rate right now.
Now is the time to lock it assoon as the file is registered.
Because again, what are therisks?
Well, if the interest rate goesup, let's say that 7 percent
(04:39):
rate is now 7.
uh, now the DTI goes up, therecould be then an issue.
Uh, where the borrower may nolonger qualify at the higher
interest rate and you could havean issue and now another factor
to lock in the rate is not theloan does not just have to do
(05:03):
with the interest rate.
But it has to do with theguidelines.
Guidelines tend to change.
And if the guidelines, if onceyou lock in a loan, you also
lock in the guidelines for thatproduct.
So that if the guidelines shouldchange, what happens every now
and then, maybe they'll tell youthe, the FICO score requirement
(05:24):
now increased from a 660 to a680.
for a particular program andyour borrower has a 662 and you
didn't lock it in and now theyrequire a 680.
Now your borrower no longerqualifies for that program.
Maybe you can fix it with arapid rescore with the borrower
paying down some accounts andthen you the MLO paying for a
(05:47):
rapid rescore or maybe you haveenough time to do that.
But keep in mind what canhappen.
Also besides a guidelinetightening you could have A
program be totally eliminatedwhere the only way that you
could, um, safeguard yourborrower is to have locked in
(06:10):
that loan, which would havelocked in the program.
So, even if the program iseliminated, you're already
locked in.
And as long as the lock isactive, um, they won't, you
know, they'll, they'll allow youto close under the program.
So, again.
Uh, be be aware of that.
(06:30):
Now, another scenario, if the,if the interest rate goes up, is
that, let's say you can't doanything with a re score, uh,
now all of a sudden, a borrowerhas to come in with more down
payment, maybe because the LTVis lower and the borrower
doesn't have the additionalmoney, uh, to cover the
additional down payment or theadditional closing costs to
(06:53):
qualify at the higher rate.
And they may not be able toclose and result in any of these
four scenarios is Barber becomesupset, cancels the loan, vows
never to conduct business, noreferral loan to the MLO, nor to
the company.
Uh, but main thing is that theirpurchase or their refi got
(07:13):
damaged by the fact that, um,the rate was not locked when it
should have been.
Remember, customers don't alwaysknow when the rate should be
locked.
Um, that's up to you to havethat discussion with the
customer and you shouldn't behaving that that discussion with
the customer when the loanapplication is going to be
(07:33):
disclosed.
You want to explain to thecustomer.
Okay, you're going to send aloan application.
We're going to register the fileon the investors portal.
Do you want to lock it in rightnow at the rate that we have?
Because they're seeing anapplication come by with a rate,
they're probably expectingthat's the interest rate they're
going to get.
They, they may not understandabout rate locks or any of that
(07:56):
kind of stuff.
So it's your job as a licenseeto explain to them everything,
um, that is involved in theprocess of the loan application,
including, because you know,you've, you've, you've brought
it all the way.
To locking the file.
I mean to disclosing the file.
Why ruin it by not alsoexplaining to them about
(08:20):
protecting the interest ratethat they think they're going to
get with a rate lock.
And my recommendation is, uh,don't lock it in for 30 days.
I would probably lock it in for45 days.
It's usually only going to costyou an extra eighth.
of a point.
Sometimes it's even the samecost.
Don't risk it because if youhave to go get an extension to
(08:43):
the rate lock, it's going tocost two to three times more to
extend it for 15 days than itwould have for you to get a 45
day lock instead of a 30 daylock.
When you initially lock it,remember things can happen that
could delay the file.
Plus also in some cases,Depending on where the loan is
(09:03):
being submitted, they requirethe rate lock to be valid
through the, um, uploading ofthe file on the investor portal
after everybody signs in theclosing.
So if it's a mail away, forexample, for the seller, and
there's going to be a two orthree day delay for the title
company to get those signeddocuments back and uploading it
(09:24):
to the portal.
Of the investor, we need to havethat rate lock valid through
that extra time period.
So there's a lot of, uh, factorshere to consider, but the main
one is, um, communication withthe customer as to, uh, locking
in the rate.
And, um, my recommendation andthis volatile environment that
(09:47):
we're in is that you lock it inas soon as you're able to and
lock it in for 45 days.
It's, it's going to give youpeace of mind.
Because we have so muchvolatility, the last thing you
want to do is lose a loanbecause now the interest rate is
not what it wants it to be.
(10:08):
So again, I guess I got a littlebit ahead of myself here in
terms of the strategies foreffective rate lock management.
But like I was stating before,early in the process, before the
loan is disclosed, communicateto the borrower.
The need to lock the rate andconfirm when the borrower
decides to lock them.
I mentioned there about lockingit for 45 days, not 30 and, and
(10:31):
please make sure that the creditand income and property type is
properly analyzed prior torequesting the rate lock to
ensure.
That, you know, the loan is, isgoing to close.
I mean, typically, you know,when we disclose a file, it's
already been checked by, youknow, with you, with, you know,
(10:51):
with your mentors and we'veanalyzed the structure and it's
usually good, but just make surethat there aren't any issues,
unforeseen issues that couldaffect the loan.
The loan closing, veryimportant.
Also manage the borrowerexpectations throughout the
process, right?
I explained to them, uh, howeverything works, like I
(11:13):
mentioned, so that they, youknow, cause they're going to
assume one thing and unless youexplain to them and manage the
expectations, then, um, youknow, it's, uh, it's going to
give you a good result in aheadache.
Let's just put it that way.
Okay.
And what are then lastly, thebenefits of effective rate lock
(11:36):
management?
You see there the happy loanofficer, right?
Well, you're going to minimizethe interest rate risk because
you're going to lock in the loanand interest rate risk is also
the risk of, you know, nothaving the program available for
when they want it.
So that's all pretty important.
You're going to providecertainty to the borrower and
(11:58):
being able to properly plan thefinances for the transaction,
right?
They know that they're whattheir payment is going to be.
They're counting on that 7percent interest rate.
If that's what it is at the lastthing they want.
Is that the last minute to betold it's going to be seven and
a half percent and even if theyqualify now their payments
higher, it may not fit intotheir budget, even though they
(12:21):
qualify, right?
Um, if it's an investor,especially we're going to help
their profitability by enhancingthe financial stability.
And for the MLO, a lot ofbenefits here, right?
You're going to have higherearnings due to less deals
falling apart due to rate lotissues.
(12:42):
You're going to have higherearnings due to increased
referrals from satisfiedcustomers.
You're going to be spending moretime on production and closing
and less time dealing withborrower issues and complaints.
And you're going to have a morepositive business outlook from
increased satisfaction of beinga successful loan consultant.
(13:04):
So the takeaway from thispresentation, the most important
one I would state is that themost, the, the best time to lock
in the file is when thecustomer.
Wants to lock it in and whenthey expect it to be or when
they expect it to be locked in.
That's what I'm saying.
(13:26):
Don't assume anythingcommunicate with the customer
the need to to, you know, what,how it works, you know, what's
the procedures for a rate lock.
Ask them if they want to lock itin.
As soon as the loan isdisclosed, they're probably
going to say yes.
Explain to them that you'regoing to lock it in for 45 days.
It doesn't matter that youquoted them a 30 day rate.
(13:47):
Lock it in for 45 days andexplain to them the benefit of
the extra 15 days in the wholeprocess.
And just, like I said, make surethat you're properly managing
the expectations.
Do not wait.
Don't think you have to wait forthe rate lock request for the
appraisal to come back.
You don't.
That file can be locked in ifit's non Dell, as soon as it's
(14:10):
disclosed and it's registeredonto the intake is completed.
If it's non Dell, and if it'sbrokered, as soon as you go on
to the lenders portal, and youupload it there, then you can
lock it in.
That's it works the same bothways.
The file has to exist.
In a lender or investor portalto be able to lock so don't wait
(14:32):
until it's too late to lock inthe file.
Um, and then all of a suddenhave an interest rate half a
percent higher or even worsethan what was originally
estimated.
So, are there any questionsregarding rate logs?
When anyone should think weshould rate log?
What do we think about theinterest rates?
(14:52):
Where do we think they're goingto go?
Any, any kind of questions likethat.
Uh, would be, uh, you know, wecan go ahead and answer that
because this should be a hottopic for everybody, right?
Uh, rate locks are, um, interestrates again are very, very, very
volatile and you should reallybe locking in those rates, uh,
(15:15):
as soon as you can, right?
On the non DELT.
Okay, so we got Jackie with aquestion.
All right, so she states here,you mentioned about a rate
increase.
What if, to the benefit of theclient, the rate goes down?
How is that handled within therate lock period?
Okay, that's a good question.
(15:36):
So I'm assuming you mean if theinterest rate is already locked,
is there any option if the ratesgo down to lower the rate?
To change the rate.
Well, that there there may bethere is in some cases that's
called a float down, right?
(15:59):
The float down is where theybasically let you bring the rate
down on a file that's alreadylocked.
Um, so what we're talking abouthere is that the float down
policy is not necessarilyavailable in every, um, investor
(16:24):
or every lender.
It varies from investor toinvestor and from lender to
lender by investor.
I'm talking about the companieswe sell a loan to if it's not
dealt and by lender, we'retalking about the on a brokered
file, the lender you'resubmitting.
The file to some have a floatdown policy that states if the,
if the cost of the rate goesdown by one point, you can float
(16:47):
it down and then they're goingto charge like a half a point,
but you get a lower rate.
So, the, you know, the benefitthen would be a half a point
benefit to the customer and thenthat half a point gets applied
to the rate and the rates goingto go down.
That's called the float down,right?
But that's not possible inevery, uh, scenario, right?
(17:12):
So do be aware when you do havea file submitted.
If rates go down and the filesare already, already locked, uh,
let us know and, you know, wecan reach out to the investor
and find out what's the floatdown policy.
But it's usually going to besomething like that.
The rate has to improve enoughso that the cost of the rate
(17:35):
Gets better.
So let's say the cost of therate decreases by a point.
For example, I know one inparticular where the cost has to
decrease by up by a point on thesame rate, and then they'll
charge a half a point.
So you get.
They'll give you the new betterpricing of a half a point and
then that can be applied to therate and the rate can be brought
(17:59):
down whatever that half a pointgets you.
Or more, if it's more than apoint drop in the cost, you
know, they're only going tocharge that half a point and the
difference in the cost goes tothe borrower to apply to the
rate to try to get a lowerinterest rate.
And so remember that's a floatdown.
Very good question, Jackie.
And then, um, Amy wants to knowwho pays for the rate lock and
(18:24):
how.
Okay.
Well, the, the rate lock doesnot, you know, we don't, we
don't charge an upfront ratelock fee.
You know, some lenders, someinvestors charge the borrower a
rate lock fee.
We don't do that.
Uh, the rate is just locked.
(18:44):
You know, we request a lock, welock it in, and that's basically
it.
Now, what happens is, if therate expires, or is going to
expire, We extend it.
There is a rate lock extensionfee that gets added to the cost
of the rate.
That's not a fee the customerpays during the process that
(19:06):
just gets added to the cost onthe rate.
And then we redisclose the extracost for the rate lock, for the
rate lock extension.
So, couple good questions there.
Any other questions on interestrates?
Where we think they're going togo?
What, anything on the process?
(19:26):
I mean, right now, again,there's a lot of volatility in
the market.
It's hard to tell.
I mean, everything is basicallyin the short term.
Right.
We're, we're dealing with shortterm situations here right now.
Always looking forward to thenext report from the Fed, the
next inflation report, the CPI,PPI, and all these other reports
(19:48):
that, that go out.
So, you know, all you can do ismonitor the, the activity and
the, and the economy to be ableto consult your borrowers.
But the key, I would state isthat once you have that
application and it's going toget disclosed, that's the moment
to discuss with the customer.
And if that's the rate thatyou're disclosing and that's the
(20:09):
one that they want, lock it inas soon as you can.
Do not wait.
Okay, we have another questionhere.
Do rate locks get processed withsenior management?
Well, when you request a ratelock through, uh, up through
Encompass, Right.
Our, which is our, our loanorigination, uh, soft system,
(20:33):
um, that request goes to ourlock desk.
Then our lock desk then goes tothe portal where the loan is
registered and request the ratelock from the investor.
And then once the rate lock isprocessed by the investor, you
get a confirmation email thatthe rate lock, uh, has been
(20:58):
processed and completed and thata change of circumstance needs
to go out.
To the borrower for the, uh,rate lock for the confirmation,
usually, you know, it's the samecost, but sometimes it's a
little bit of a higher cost.
So yeah, we definitely need toalways redisclose rate locks,
(21:22):
uh, because remember any changein circumstance.
Has to be redisclosed withinthree days.
So if that rate lock is notredisclosed within three days,
your file will be out ofcompliance and it risks not
being able to close, especiallyif the costs went up.
It definitely risks not beingable to close for not having re
(21:45):
disclosed the rate lock.
Good questions today.
All right, so I'll give it amoment to see if we have any
more questions.
A very important topic today,rate lock management.
And again, I can't stress anymore than the state, the best
(22:06):
time to lock the rate.
Is as soon as the file isdisclosed and intake is
completed so you can make surethat the customer gets the rate
that they saw on thatapplication.
Right?
Yeah.
I mean, you sent him a quote.
They're like, yeah, that's the 1I want.
And that's the 1 that they'regoing to see on the on the loan
estimate as their son as your, Imean, on the initial loan
(22:27):
estimate that they're signing.
The last thing they want is toget a loan estimate when it gets
locked in at a higher interestrate, especially if you haven't
discussed it with them.
And especially if they were notthe ones that tell you to hold
off, don't lock it in yet.
I had a customer told me acouple of weeks ago, no, don't
lock it in yet.
(22:48):
I'm like, are you sure you don'twant to lock it in?
And by the way, this was all viaemail.
And finally, uh, the customerwas like, no, don't lock it in.
I think it's going to get betterand instead it's gotten worse.
So I'll be reaching out to himtoday at some point to see what
they want to do because we had alittle dip the last couple of
days.
So this may be a good moment totake advantage of this.
(23:14):
All right.
Good questions today.
I'll give it another minute tosee if anyone has any additional
questions on rate locks or ratelock management or interest
rates in general.
But I do appreciate all of you,uh, being in today's, uh,
training.
Very, very important training.
We don't want to lose a loanafter working so hard to get the
(23:35):
loan because we did not lock theloan.
All right, everyone.
I think that's probably it forthe questions.
Uh, do appreciate you all beinghere and I will see you next
Thursday.
Have a good day.
Now, as everyone knows, a rate lock
(00:04):
is an agreement between lenderthat allows the borrower to lock
in the interest rate on amortgage for a specified time
period at the prevailing marketrate and provides the borrower
with protection against a risein interest rates during the
lock period.
very important during these veryvolatile times right now.
(00:28):
Now, interest rate risk is therisk that the market interest
rate will rise, which will causea decline in the value of the
instrument.
Now that's really more for the,um, for secondary.
And the pull through rate is thenumber of our loan applications
that are closed and funded bythe lender versus the total
number of submitted loanapplications over a set period
(00:50):
of time.
So we really want to make surethat we close We now we all know
what interest is, but what arethe factors that affect interest
rates?
Well, Federal Reserve, right?
Open market operations.
We've seen it happening rightnow.
(01:10):
Last couple of days, we'relooking at inflation.
Now, in the last couple of days,inflation risk went down.
Some CPI numbers came out, uh,lower than expected.
So the market has, uh, reactedpositively and the rates have
gone down.
So today's a good day to lock,by the way.
(01:32):
Um, you know, we've, we've goneover this and other trainings on
how do, um, what are theconditions that affect
inflation?
Interest rates, right?
So we all know we got to keep aneye on that 10 year, see where
it's going to keep an eye onwhat the Fed has to say, um, so
that we can have an idea and beable to consult our borrowers.
(01:58):
So, well, we really, what arethe challenges?
With rate lock management.
This is really what I wanted toget into here.
So market and interest ratevolatility.
That's what we want to control,right?
Because what can happen if youdo not lock that file in?
Let's say you disclose the fileat 7 percent and the DTI was 49
(02:25):
percent on a convention aloneand the borrower qualifies.
Okay.
But now, all of a sudden, youdid not, um, lock in the file as
soon as the disclosures weresigned.
And as soon as a file wasregistered onto the portal,
which is when you can lock, youcannot lock the file in as soon
(02:45):
as the loan application is takenbecause the file does not exist.
On the investors portal.
We have to wait till the file isdisclosed intake registers the
file on the portal, and thenyou're going to request your
rate lock.
As soon as you, this is a nondelegated files, by the way, if
it's a brokered file, you'regoing to be submitting and
(03:08):
disclosing and all that kind ofstuff and, um, you, you're going
to request the rate lockyourself via the portal of the
lender where you're submittingthe loan.
If it's non delegated.
Uh, you request the lock, um,through encompass and our, our
live desk will go and processthat, uh, rate lock request as
(03:31):
soon as the loan exists on theportal of the investor, which is
why some of you may get theemail.
Your lock request has beendenied.
Because the customer hasn'tsigned the disclosures yet and
intake has not completed the,um, the registration of the loan
on the portal.
(03:52):
So you got to wait till thatfile exists in the portal.
But once it does, that's yourgreen light that you can lock it
in at that moment.
You do not have to wait till theappraisal comes back a week or
two weeks later.
To lock it in because, you know,with the amount of volatility
that we're having right now inthe market, if you wait one day,
(04:18):
it could be too late.
Right?
So if, um, it's ready now andthe customer is happy with the
rate right now.
Now is the time to lock it assoon as the file is registered.
Because again, what are therisks?
Well, if the interest rate goesup, let's say that 7 percent
(04:39):
rate is now 7.
uh, now the DTI goes up, therecould be then an issue.
Uh, where the borrower may nolonger qualify at the higher
interest rate and you could havean issue and now another factor
to lock in the rate is not theloan does not just have to do
(05:03):
with the interest rate.
But it has to do with theguidelines.
Guidelines tend to change.
And if the guidelines, if onceyou lock in a loan, you also
lock in the guidelines for thatproduct.
So that if the guidelines shouldchange, what happens every now
and then, maybe they'll tell youthe, the FICO score requirement
(05:24):
now increased from a 660 to a680.
for a particular program andyour borrower has a 662 and you
didn't lock it in and now theyrequire a 680.
Now your borrower no longerqualifies for that program.
Maybe you can fix it with arapid rescore with the borrower
paying down some accounts andthen you the MLO paying for a
(05:47):
rapid rescore or maybe you haveenough time to do that.
But keep in mind what canhappen.
Also besides a guidelinetightening you could have A
program be totally eliminatedwhere the only way that you
could, um, safeguard yourborrower is to have locked in
(06:10):
that loan, which would havelocked in the program.
So, even if the program iseliminated, you're already
locked in.
And as long as the lock isactive, um, they won't, you
know, they'll, they'll allow youto close under the program.
So, again.
Uh, be be aware of that.
(06:30):
Now, another scenario, if the,if the interest rate goes up, is
that, let's say you can't doanything with a re score, uh,
now all of a sudden, a borrowerhas to come in with more down
payment, maybe because the LTVis lower and the borrower
doesn't have the additionalmoney, uh, to cover the
additional down payment or theadditional closing costs to
(06:53):
qualify at the higher rate.
And they may not be able toclose and result in any of these
four scenarios is Barber becomesupset, cancels the loan, vows
never to conduct business, noreferral loan to the MLO, nor to
the company.
Uh, but main thing is that theirpurchase or their refi got
(07:13):
damaged by the fact that, um,the rate was not locked when it
should have been.
Remember, customers don't alwaysknow when the rate should be
locked.
Um, that's up to you to havethat discussion with the
customer and you shouldn't behaving that that discussion with
the customer when the loanapplication is going to be
(07:33):
disclosed.
You want to explain to thecustomer.
Okay, you're going to send aloan application.
We're going to register the fileon the investors portal.
Do you want to lock it in rightnow at the rate that we have?
Because they're seeing anapplication come by with a rate,
they're probably expectingthat's the interest rate they're
going to get.
They, they may not understandabout rate locks or any of that
(07:56):
kind of stuff.
So it's your job as a licenseeto explain to them everything,
um, that is involved in theprocess of the loan application,
including, because you know,you've, you've, you've brought
it all the way.
To locking the file.
I mean to disclosing the file.
Why ruin it by not alsoexplaining to them about
(08:20):
protecting the interest ratethat they think they're going to
get with a rate lock.
And my recommendation is, uh,don't lock it in for 30 days.
I would probably lock it in for45 days.
It's usually only going to costyou an extra eighth.
of a point.
Sometimes it's even the samecost.
Don't risk it because if youhave to go get an extension to
(08:43):
the rate lock, it's going tocost two to three times more to
extend it for 15 days than itwould have for you to get a 45
day lock instead of a 30 daylock.
When you initially lock it,remember things can happen that
could delay the file.
Plus also in some cases,Depending on where the loan is
(09:03):
being submitted, they requirethe rate lock to be valid
through the, um, uploading ofthe file on the investor portal
after everybody signs in theclosing.
So if it's a mail away, forexample, for the seller, and
there's going to be a two orthree day delay for the title
company to get those signeddocuments back and uploading it
(09:24):
to the portal.
Of the investor, we need to havethat rate lock valid through
that extra time period.
So there's a lot of, uh, factorshere to consider, but the main
one is, um, communication withthe customer as to, uh, locking
in the rate.
And, um, my recommendation andthis volatile environment that
(09:47):
we're in is that you lock it inas soon as you're able to and
lock it in for 45 days.
It's, it's going to give youpeace of mind.
Because we have so muchvolatility, the last thing you
want to do is lose a loanbecause now the interest rate is
not what it wants it to be.
(10:08):
So again, I guess I got a littlebit ahead of myself here in
terms of the strategies foreffective rate lock management.
But like I was stating before,early in the process, before the
loan is disclosed, communicateto the borrower.
The need to lock the rate andconfirm when the borrower
decides to lock them.
I mentioned there about lockingit for 45 days, not 30 and, and
(10:31):
please make sure that the creditand income and property type is
properly analyzed prior torequesting the rate lock to
ensure.
That, you know, the loan is, isgoing to close.
I mean, typically, you know,when we disclose a file, it's
already been checked by, youknow, with you, with, you know,
(10:51):
with your mentors and we'veanalyzed the structure and it's
usually good, but just make surethat there aren't any issues,
unforeseen issues that couldaffect the loan.
The loan closing, veryimportant.
Also manage the borrowerexpectations throughout the
process, right?
I explained to them, uh, howeverything works, like I
(11:13):
mentioned, so that they, youknow, cause they're going to
assume one thing and unless youexplain to them and manage the
expectations, then, um, youknow, it's, uh, it's going to
give you a good result in aheadache.
Let's just put it that way.
Okay.
And what are then lastly, thebenefits of effective rate lock
(11:36):
management?
You see there the happy loanofficer, right?
Well, you're going to minimizethe interest rate risk because
you're going to lock in the loanand interest rate risk is also
the risk of, you know, nothaving the program available for
when they want it.
So that's all pretty important.
You're going to providecertainty to the borrower and
(11:58):
being able to properly plan thefinances for the transaction,
right?
They know that they're whattheir payment is going to be.
They're counting on that 7percent interest rate.
If that's what it is at the lastthing they want.
Is that the last minute to betold it's going to be seven and
a half percent and even if theyqualify now their payments
higher, it may not fit intotheir budget, even though they
(12:21):
qualify, right?
Um, if it's an investor,especially we're going to help
their profitability by enhancingthe financial stability.
And for the MLO, a lot ofbenefits here, right?
You're going to have higherearnings due to less deals
falling apart due to rate lotissues.
(12:42):
You're going to have higherearnings due to increased
referrals from satisfiedcustomers.
You're going to be spending moretime on production and closing
and less time dealing withborrower issues and complaints.
And you're going to have a morepositive business outlook from
increased satisfaction of beinga successful loan consultant.
(13:04):
So the takeaway from thispresentation, the most important
one I would state is that themost, the, the best time to lock
in the file is when thecustomer.
Wants to lock it in and whenthey expect it to be or when
they expect it to be locked in.
That's what I'm saying.
(13:26):
Don't assume anythingcommunicate with the customer
the need to to, you know, what,how it works, you know, what's
the procedures for a rate lock.
Ask them if they want to lock itin.
As soon as the loan isdisclosed, they're probably
going to say yes.
Explain to them that you'regoing to lock it in for 45 days.
It doesn't matter that youquoted them a 30 day rate.
(13:47):
Lock it in for 45 days andexplain to them the benefit of
the extra 15 days in the wholeprocess.
And just, like I said, make surethat you're properly managing
the expectations.
Do not wait.
Don't think you have to wait forthe rate lock request for the
appraisal to come back.
You don't.
That file can be locked in ifit's non Dell, as soon as it's
(14:10):
disclosed and it's registeredonto the intake is completed.
If it's non Dell, and if it'sbrokered, as soon as you go on
to the lenders portal, and youupload it there, then you can
lock it in.
That's it works the same bothways.
The file has to exist.
In a lender or investor portalto be able to lock so don't wait
(14:32):
until it's too late to lock inthe file.
Um, and then all of a suddenhave an interest rate half a
percent higher or even worsethan what was originally
estimated.
So, are there any questionsregarding rate logs?
When anyone should think weshould rate log?
What do we think about theinterest rates?
(14:52):
Where do we think they're goingto go?
Any, any kind of questions likethat.
Uh, would be, uh, you know, wecan go ahead and answer that
because this should be a hottopic for everybody, right?
Uh, rate locks are, um, interestrates again are very, very, very
volatile and you should reallybe locking in those rates, uh,
(15:15):
as soon as you can, right?
On the non DELT.
Okay, so we got Jackie with aquestion.
All right, so she states here,you mentioned about a rate
increase.
What if, to the benefit of theclient, the rate goes down?
How is that handled within therate lock period?
Okay, that's a good question.
(15:36):
So I'm assuming you mean if theinterest rate is already locked,
is there any option if the ratesgo down to lower the rate?
To change the rate.
Well, that there there may bethere is in some cases that's
called a float down, right?
(15:59):
The float down is where theybasically let you bring the rate
down on a file that's alreadylocked.
Um, so what we're talking abouthere is that the float down
policy is not necessarilyavailable in every, um, investor
(16:24):
or every lender.
It varies from investor toinvestor and from lender to
lender by investor.
I'm talking about the companieswe sell a loan to if it's not
dealt and by lender, we'retalking about the on a brokered
file, the lender you'resubmitting.
The file to some have a floatdown policy that states if the,
if the cost of the rate goesdown by one point, you can float
(16:47):
it down and then they're goingto charge like a half a point,
but you get a lower rate.
So, the, you know, the benefitthen would be a half a point
benefit to the customer and thenthat half a point gets applied
to the rate and the rates goingto go down.
That's called the float down,right?
But that's not possible inevery, uh, scenario, right?
(17:12):
So do be aware when you do havea file submitted.
If rates go down and the filesare already, already locked, uh,
let us know and, you know, wecan reach out to the investor
and find out what's the floatdown policy.
But it's usually going to besomething like that.
The rate has to improve enoughso that the cost of the rate
(17:35):
Gets better.
So let's say the cost of therate decreases by a point.
For example, I know one inparticular where the cost has to
decrease by up by a point on thesame rate, and then they'll
charge a half a point.
So you get.
They'll give you the new betterpricing of a half a point and
then that can be applied to therate and the rate can be brought
(17:59):
down whatever that half a pointgets you.
Or more, if it's more than apoint drop in the cost, you
know, they're only going tocharge that half a point and the
difference in the cost goes tothe borrower to apply to the
rate to try to get a lowerinterest rate.
And so remember that's a floatdown.
Very good question, Jackie.
And then, um, Amy wants to knowwho pays for the rate lock and
(18:24):
how.
Okay.
Well, the, the rate lock doesnot, you know, we don't, we
don't charge an upfront ratelock fee.
You know, some lenders, someinvestors charge the borrower a
rate lock fee.
We don't do that.
Uh, the rate is just locked.
(18:44):
You know, we request a lock, welock it in, and that's basically
it.
Now, what happens is, if therate expires, or is going to
expire, We extend it.
There is a rate lock extensionfee that gets added to the cost
of the rate.
That's not a fee the customerpays during the process that
(19:06):
just gets added to the cost onthe rate.
And then we redisclose the extracost for the rate lock, for the
rate lock extension.
So, couple good questions there.
Any other questions on interestrates?
Where we think they're going togo?
What, anything on the process?
(19:26):
I mean, right now, again,there's a lot of volatility in
the market.
It's hard to tell.
I mean, everything is basicallyin the short term.
Right.
We're, we're dealing with shortterm situations here right now.
Always looking forward to thenext report from the Fed, the
next inflation report, the CPI,PPI, and all these other reports
(19:48):
that, that go out.
So, you know, all you can do ismonitor the, the activity and
the, and the economy to be ableto consult your borrowers.
But the key, I would state isthat once you have that
application and it's going toget disclosed, that's the moment
to discuss with the customer.
And if that's the rate thatyou're disclosing and that's the
(20:09):
one that they want, lock it inas soon as you can.
Do not wait.
Okay, we have another questionhere.
Do rate locks get processed withsenior management?
Well, when you request a ratelock through, uh, up through
Encompass, Right.
Our, which is our, our loanorigination, uh, soft system,
(20:33):
um, that request goes to ourlock desk.
Then our lock desk then goes tothe portal where the loan is
registered and request the ratelock from the investor.
And then once the rate lock isprocessed by the investor, you
get a confirmation email thatthe rate lock, uh, has been
(20:58):
processed and completed and thata change of circumstance needs
to go out.
To the borrower for the, uh,rate lock for the confirmation,
usually, you know, it's the samecost, but sometimes it's a
little bit of a higher cost.
So yeah, we definitely need toalways redisclose rate locks,
(21:22):
uh, because remember any changein circumstance.
Has to be redisclosed withinthree days.
So if that rate lock is notredisclosed within three days,
your file will be out ofcompliance and it risks not
being able to close, especiallyif the costs went up.
It definitely risks not beingable to close for not having re
(21:45):
disclosed the rate lock.
Good questions today.
All right, so I'll give it amoment to see if we have any
more questions.
A very important topic today,rate lock management.
And again, I can't stress anymore than the state, the best
(22:06):
time to lock the rate.
Is as soon as the file isdisclosed and intake is
completed so you can make surethat the customer gets the rate
that they saw on thatapplication.
Right?
Yeah.
I mean, you sent him a quote.
They're like, yeah, that's the 1I want.
And that's the 1 that they'regoing to see on the on the loan
estimate as their son as your, Imean, on the initial loan
(22:27):
estimate that they're signing.
The last thing they want is toget a loan estimate when it gets
locked in at a higher interestrate, especially if you haven't
discussed it with them.
And especially if they were notthe ones that tell you to hold
off, don't lock it in yet.
I had a customer told me acouple of weeks ago, no, don't
lock it in yet.
(22:48):
I'm like, are you sure you don'twant to lock it in?
And by the way, this was all viaemail.
And finally, uh, the customerwas like, no, don't lock it in.
I think it's going to get betterand instead it's gotten worse.
So I'll be reaching out to himtoday at some point to see what
they want to do because we had alittle dip the last couple of
days.
So this may be a good moment totake advantage of this.
(23:14):
All right.
Good questions today.
I'll give it another minute tosee if anyone has any additional
questions on rate locks or ratelock management or interest
rates in general.
But I do appreciate all of you,uh, being in today's, uh,
training.
Very, very important training.
We don't want to lose a loanafter working so hard to get the
(23:35):
loan because we did not lock theloan.
All right, everyone.
I think that's probably it forthe questions.
Uh, do appreciate you all beinghere and I will see you next
Thursday.
Have a good day.
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
The Breakfast Club
The World's Most Dangerous Morning Show, The Breakfast Club, With DJ Envy, Jess Hilarious, And Charlamagne Tha God!