May 28, 2024 • 36 mins
Welcome to "Loan Officer Training," the podcast designed to elevate your expertise in the mortgage industry. In this week's must-listen episode, "Effective Rate Lock Management," we dive into the art and science of mastering interest rate locks—an essential skill that can set you apart from the competition and make you a true client champion.
Imagine confidently guiding your clients through the complexities of interest rates, securing the best possible deals, and ensuring a smooth, stress-free loan process. This episode is your key to unlocking that potential. We’ll demystify the rate lock process, offering you insider tips and strategies to help you navigate this critical aspect of your role with precision and finesse.
Featuring insights from industry veterans and success stories from top-performing loan officers, this episode is packed with practical advice that you can apply immediately to boost your success. Whether you're a seasoned pro looking to sharpen your skills or a newcomer eager to make a mark, "Effective Rate Lock Management" offers invaluable knowledge to help you excel.
Don't miss out on this opportunity to enhance your expertise, delight your clients, and close more deals with confidence. Tune in to "Loan Officer Training" now and transform your approach to rate lock management. Your clients will thank you, and your reputation as a trusted advisor will soar!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Restream recording May 28, 2 (00:02):
So welcome everyone.
My name is Kyle Hiersche I'm theCOO of the Mortgage Calculator
joined here by our PresidentNick Hiersche and our Sales
Manager Jose Gonzalez.
We are a lender that specializesin non QM loans and what we do
every Tuesday, Wednesday andThursday evening at 7 p.
m.
Eastern is this loan officertraining series, where we do a
deep dive into a different loanofficer training topic.
(00:22):
And tonight's topic is going tobe effective rate lock
management, which is ever soimportant, especially right now
in this rate environment thatwe're in.
So, for joining us.
Jose, I will let you go straightinto it.
Let's talk about how to managerate locks effectively.
Good evening, everybody.
(00:43):
Thank you for joining us fortoday's training on effective
rate lock management.
As Kyle noted, with all of thisvolatility that we're having in,
in our lending environment, Itis always good to go back to the
basics and make sure that youare dotting your I's and
(01:03):
crossing your T's and notleaving money on the table for a
lot of the different reasonsthat we are going to cover in
this presentation on effectiverate block management.
There's some very, very criticalpoints to consider that in the
hustle and bustle of oureveryday life as busy mortgage
(01:25):
loan originators.
Some of us also as Realtors wemay tend to forget those basic
things like, you know, dottingyour i's and crossing the t's
that can result in your dealfalling apart.
So what exactly am I talkingabout?
Well, get into it, right?
First, let's add a little bit ofcontext, right?
Always like to empower myaudience so that you know
(01:47):
exactly what we're about.
So what exactly is a rate lock?
Right?
A rate lock is an agreementbetween a borrower and lender
that allows the borrower to lockin the interest rate on a
mortgage for a specified timeperiod at the prevailing market
rate.
(02:07):
And provides the borrower withprotection against a rise in
interest rates during the lockperiod.
Normally the longer the ratelock period the more expensive
the cost on the rate.
Usually you're going to see andsometimes you're the same.
It really depends on theproduct, really depends on the
moment.
(02:28):
But you know, you'll see the 30day price and then the 45 day
price and usually you're gonnahave a difference of anywhere
from a 0.125 to a 0.25 pointdifference in the cost of the
rate for the different timeperiods.
But like I did mention,sometimes there won't be a
difference.
You just have to really look atthe rate sheet, make sure.
(02:50):
where you stand.
Another term you're going to seethrown around, especially in my
presentation here, is interestrate risk.
Now that's what we're trying tominimize when we are locking in
these loans.
Interest rate risk is the riskthat market interest rates will
(03:12):
rise.
Which will cause a decline inthe value of the instrument, the
loan package.
So when, when that happens, theway to increase the value is, I
mean, if the, if the, if itchanges one way or another, then
they may charge you more for thesame.
(03:36):
That's how they maintain thevalue of the package.
So if the market decline and therates went up, Then the cost of
the rate will go up unless youwere locked in.
Pull through rate.
Now, this is very important forus definitely as lenders because
you don't want to have a lowpull through rate.
(03:57):
The pull through rate is thenumber of loan applications that
are closed and open.
Funded by the lender versus thetotal number of submitted loan
applications over a set periodof time.
And really, we're talking aboutlocked loan applications here.
I guess I should add that pullthrough rate is really concerned
with the number of loans thatyou locked.
(04:19):
And did you close all of thoselocks or did you break the lock
because either the file didn'tget approved or whatever reason
happened, the loan gotcancelled, it was a refi, loan
got cancelled, it was apurchase.
All of those cancellations couldaffect your pull through rate to
the point that if the pullthrough rate drops below a
(04:40):
certain point there may be apenalty placed upon the pricing
of that organization.
So, in other words, they'regoing to affect your pricing.
It's not going to be as good.
The higher the pull throughrate, you can negotiate possibly
better pricing, lower pullthrough rate.
You're probably going to havePricing and here the last point
(05:03):
here.
A very, very important point toconsider in rate lock
management, right?
This is really where themanagement comes up.
You're already locked.
You definitely want to keep aneye on, out to see what's going
on with the rates, right?
To see if you can take advantageof a float down because a float
(05:23):
down is a policy that allowsrenegotiating the lock.
Once a minimum thresholddifference has been reached
usually that pricing thresholdis usually at least a one point
betterment in pricing.
It's not a hundred percentacross the board.
Some, it could be a littlehigher, some it may be lower,
(05:44):
but typically what I've beenseeing is one point.
That means that.
If the current pricing for theloan is at least one point in
cost lower than when it waslocked in, then there is the
ability to renegotiate and beable to float down to the lower
(06:08):
cost rate or to the, or, or getthe lower cost for the same
rate.
But keep in mind, this is alwaysgoing to come at a cost.
The cost I've seen a lot oftimes is a half a point.
But it could be one point that'sgoing to depend on the investor.
It does vary from investor toinvestor as do the float down
policies also vary from investorto investor, because remember, I
(06:31):
mean, you're, you're locked in.
You know, and what may happen isthat if they don't have a float
down policy, they may end upwith canceled loans because the
customer says, forget about it.
I don't want to do it anymore.
It's not worth it.
Or some MLOs that getoverzealous and cancel at one
spot and, and start somewhereelse and submit and lock it out
(06:54):
somewhere else just to try tosave the money that way.
That's not what we want.
That's not an acceptableindustry practice.
That'll definitely affect yourpull through rate and could
cause you even to be canceledfrom submitting loans or put on
probation from submitting loansto a particular conduit.
If they find out that you'redoing that type of maneuver.
(07:16):
So you definitely want to alwayslook at the float down option
instead of just straight out,cancel the file just to take
advantage.
Thank you.
I'm pricing somewhere else thatmay be a little bit better.
So we, we recently had ourunderstanding, you know, market
(07:38):
fluctuations, interest rate, andwhat causes it.
So I'm going to condense thatdown to one slide here.
Because as we discussed in thatpresentation, understanding
interest rate fluctuations iskey, right?
There's it's not, you know, thatdifficult if you just follow
(07:58):
certain indicators andunderstand.
What you're looking at, right?
Usually that information isreadily available on a lot of
different websites and it doeschange throughout the day.
So what is interest, right?
Interest is the price you pay toborrow money and is typically
expressed as an annualpercentage.
What are the factors affectinginterest rates?
(08:21):
This is the condensed version,right?
Federal, the Federal ReserveBank through open market
operations sets interest ratesmanages the money supply,
regulates financial markets, andacts as a lender of last resort
during periods of economiccrisis, right?
(08:42):
They're going to monitor certainindicators in our economy and
then make their monetary policydecisions.
Based on those indicators,right?
And what are the things thatthey're trying, they're trying
to do, right?
Well, first and foremost,inflation, right?
They want to keep inflationbelow a certain target.
(09:05):
The target right now is twopercent.
So, the Federal Reserve countersinflation by raising Fed funds
rate when, which increases allother borrower costs down the
line.
Fed funds rate, the Fed fundsare, are the, that's funds that
banks lend and borrow.
(09:27):
You know, so the, the ones thathave an excess in capital
reserve will lend the money tothose that are deficient in
capital reserve requirements,they'll borrow the money via the
fed funds exchange, I guess youcould call it.
It's an overnight type loan.
That definitely affects bankscost to borrow their banks that
(09:49):
are always borrowing fed funds.
So obviously that's going to beone of their standard business
operating expenses.
The higher the fed funds rate,the higher the cost of money,
the higher, then it's going totrickle down and result in
higher interest rates toeverybody else.
And other component that thefederal reserve watches.
And it is the unemployment ratebecause the lower the rate that
(10:13):
equals more people working,right?
Which means hotter economy, morespending and higher prices,
right?
The higher the unemploymentrate.
And it's the opposite.
You would expect there to be acooling off of the economy, less
spending, and the prices toease.
That's the, the general theorythere.
(10:36):
So in essence, yeah, the FederalReserve is trying to increase
the unemployment rate whenthey're increasing the cost to
borrow because they want to slowdown the economy.
A lot of things come into play.
And the last bullet point thereis the gross domestic product,
which is basically the output ofthe of the U.
S.
(10:56):
economy, taking intoconsideration both the
manufacturing serve sector andthe services sector that is our
GDP.
So the GDP determines ourability to pay, right?
The better the gross domesticproduct, We have a better
economy.
We should be operating at somesurpluses.
(11:17):
We're not going to, thecountry's not going to need to
borrow.
So if, but if we do need toborrow more, the rate of the
instrument will need toincrease, right?
Because in borrowing more, we'rebasically issuing more bonds or
the U S treasury.
I guess is issuing more bonds,treasury securities, more
(11:39):
supply.
So you gotta, you know, moresupply means you're going to
have a lower value and then tobump the value back up.
You have to increase the yieldhigher yield makes the
instrument worth more, butunfortunately means higher
interest rates to our consumers.
(12:01):
So, again, make sure you checkout that training for that show
that we had on understandinginterest rate fluctuations for
more detail on this, but.
Definitely you have to have alittle bit of knowledge so you
can follow the reports.
So what are some strategies foreffective rate lock management,
(12:25):
right?
Well, analyze the market trendsand economic indicators daily.
The ones we were talking aboutand share these with your
borrower.
We always talk about empoweringthe borrower.
It should really be a decisionmade by the borrower.
Where you are basicallyenlightening them to the need,
(12:48):
empowering them with someknowledge so that then they can
Analyze everything and tell youwhat they want to do.
If they want to lock in now, ifthey want to lock in later, how
they want to do it.
But again, this leads veryimportant to the second bullet
point early in the process, notwhen you're approved, but early
(13:09):
in the process, before the loanis disclosed, you want to
communicate to the borrower, theneed.
To lock the rate and confirmwhen the borrower decides to
lock the rate.
They may like the rate that theyhave right now and the cost.
So as soon as the file isdisclosed.
And they sign and you sign andthe file is set up and
(13:32):
registered in the portal whereit's going to be submitted, then
we can lock in that file, right?
And that's what the customerwants.
Or maybe the customer says, no,Jose, you know, I'm following
the market or whatever they'relooking at.
And I really rather wait alittle bit more.
I want to wait right till beforeit's going to be ready to close
to lock it in.
Okay.
(13:53):
That's fine.
But you want to make sure thatthat communication is in
writing.
Like via an email and all thatkind of stuff.
Because what you don't want isfor the bar to say, Jose, you
never told me on May 28th that Ishould lock my loan.
And now look what happened.
It's going to cost me one morepoint.
And then I can go back to theemail and say, yep, here's the
(14:15):
email where I initially askedyou.
And here's a follow up emailwhere I said, Hey, listen, it's
been a few days.
There's volatility.
Do you still have it?
Still want to wait or what doyou want to do?
And here's your reply in bothinstances that you wanted to
wait.
So, you know, you're clear ofthat one, but you want to make
sure that you are not the reasonthat the borrower did not lock
(14:36):
because most borrowers, I mean,unless they're like really
experienced borrowers may not beaware of how the process really
works, right?
You're assuming they know, butthey don't know.
And they're assuming whatthey're usually assuming is that
when they get that loandisclosure package and it has a
rate.
They're assuming that's my ratefor this throughout this whole
(14:57):
process unless you tell themotherwise about when do you want
to lock the rate.
That's why it's so important tocommunicate.
Give yourself a cushion oflocking in right after the loan
disclosure, especially forpurchases and lock in for 45
days and not 30 days.
(15:17):
As the cost to extend the rateis two to three times higher
than the cost of the originallock.
So, what do I mean by that?
Okay, you go to check out on therate and it says, you know, 30
day lock at seven percent costto extend.
A half a point, 0.
5.
Then it says the same interestrate for 45 days may cost 0.
(15:42):
625, right?
A 0.
125 more for the extra 15 days.
However.
If you go to extend that lock,it could easily cost you 0.
375 and more depending on whatyou wanted to do.
If you wanted to do, you know,15 days, right?
A lot of times they're costingtwo, three, four, five basis
(16:06):
points that could cost dependingon the investor.
So be aware that, you know,typically we're seeing the cost
to extend Being two to threetimes higher than the cost for
the the original cost of theextra days, especially on
purchases.
I mean, unless you received anappraisal waiver on the file,
(16:28):
there's a good probability thatit's going to be tough to close
it in 30 days.
And you would probably want to,if you're going to lock it in
from the onset, right afterdisclosure, you probably want to
do a 45 day lock.
Not a 15 day lock.
Now my next bullet point isreally important.
On, you know, when you do yourproper consultation of the
(16:51):
borrower, because you want tomake sure that you properly
analyze their credit, theirincome and property type prior
to requesting the rate lock.
Why?
Well, what if you know, you lockit in at disclosure, you don't
have all the income dogs and allof a sudden the income comes in
(17:12):
different.
DTI is now not 35, it's 48.
Right.
It has a higher cost or worse.
Something happens when you doget the documentation or the
review that now the borrowerdoesn't even qualify for that
program.
Now you got to go throughanother program.
Maybe now you got to go backstatement or who knows what, and
(17:33):
maybe that, that conduit doesn'thave that program.
So now you got to cancel theloan there and take it somewhere
else.
You know, and that's going toaffect your pull through rate,
so don't be overzealous in youreagerness to quickly log in the
rate and then mess it up foryourself later when you have to
(17:55):
make all these changes and mostimportantly, it's not the last
one.
Because it's the leastimportant.
It's probably the one that tiesin all of them together.
Make sure you, you manage theborrower expectations throughout
the process.
That's a great strategy foreffective rate lock management
(18:16):
and just the loan in general.
And you know, keep them abreastthrough every milestone change,
anything that's happeningthrough the file, just so that
they're aware of what they canexpect.
Stuff like this, stuff like withthe appraisal, with the income.
With the rate lock differentthings and also obviously not
related to rate lock, but withthe closing, right, the closing
(18:39):
date, if there's going to be anykind of delays or anything like
that, make sure that you pleasekeep the borrower informed
throughout the process, that'sgoing to make it a lot easier
for you because what did thedelay.
is caused by the borrower, notby you.
And they're very well awarebecause you've been letting them
know through the process whatyou needed, when you received it
(18:59):
if it was good, if it was bad,the turnaround time and
underwriting, the turnaroundtime to review, the turnaround
time for the appraisal, all thedifferent things.
And then all of a sudden youneed to get an extension due to
an unforeseen delay, but theborrower already knew.
What was going on.
So it's not going to be an issuefor you when the borrower sees
(19:19):
the the Ellie with theadditional cost to extend the
rate.
Right?
So make sure you manage thosebar expectations.
So you can keep your dealtogether now.
What are some challenges?
And the end results of what canhappen, right?
(19:41):
I got the challenge in black andthe negative result in red.
Well, the first challenge isyou're talking about market and
interest rate volatility, right?
And our, I mean, if you look atthe last 30 days, Activity in
the 10 year treasury, you'regoing to know what I'm talking
(20:01):
about in volatility.
Well, market rate and interestrate volatility could result in
interest rates spiking and theborrower no longer qualifies at
the higher rate if you neverlocked it in, right?
This is now this I guess Ishould.
Backtrack a minute and this pageis more like what can happen if
you don't lock in the rate,right?
(20:23):
That's why it's a challenge inrate lock management.
So the first would be marketingit to treat volatility causing
an interest rate spike where theborrower no longer qualifies at
the higher rate.
And maybe can't afford to buy itdown to the lower rate, right?
So definitely you do not want aborrower who now is disqualified
from the loan because you didn'tlock in the rate and you were at
(20:46):
49.
8 percent DTI.
And now you're at 53 or 54.
So keep an eye on that.
What is another challenge wouldbe revision of guidelines.
You didn't lock the loan in andnow all of a sudden they
eliminated the 85 percent LTVDSCR, for example, or they
(21:08):
eliminated the use of short termrental on the DSCR.
Or who knows what can happenwith, when guidelines are
revised, a lot of differentthings can happen where a
program could be totallyeliminated.
So.
In this case, the, the conduitthat's lending the money.
(21:30):
They are tightening theguidelines to reduce interest
rate risk on their part.
Remember, interest rate risk iswhat happens for example, to
their value of their portfoliowhen interest rate changes.
What's the value of theportfolio of loans or that
particular value of thatparticular loan, which is
(21:52):
already locked in.
So sometimes what they'll do isthey'll revise guidelines.
And make them tighter, right?
Tightening of the guidelinereduces the risk.
Hence, the price on that loan orthat loan type.
Could remain the same becauseyou lowered the risk.
However, so that's good for theborrowers whose Guideline
(22:15):
tightening didn't disqualifythem from the loan, right?
That's good for the bar with thehigh credit score, for example
but the one who now maybe isbelow the Minimum credit score.
Maybe he was at a 640 now.
They raised it to 660.
He's out of gas Right?
And that's intentional becausethey want to increase the value
(22:37):
of the portfolio.
And the way to do it is reducethe risk.
And that's one of the ways to doit.
Another risk which I mentionedhere is the total elimination of
programs over here on the secondbullet point.
We're talking about revision ofguidelines.
The third bullet point we'retalking about loan programs can
actually disappear if you didnot.
(22:59):
Have the loan locked prior tothey're making the decision to
eliminate that program.
You all have seen the emailscome through where programs
eliminated.
Everybody whose loan is lockedwill be good.
Sometimes they'll tell you, makesure you don't have to get an
extension and we're not going toextend it, or sometimes they
will.
It's really case by casesituation.
(23:22):
But now I have seen in rareoccasions in extremely volatile
situations.
Where a conduit may actuallydecide to cancel rate locks and
not honor them.
Obviously they're going to losea lot of goodwill in the
industry when they do that.
(23:42):
But I mean, the end result couldbe they're allowing the bar to
close on a bunch of loans thatthey're just going to lose money
on one after the other when theygo sell it into the secondary
market.
So at that point, the, theinvestor, in this case, the
conduit.
Right.
That's that's I'm asking theloan packages is going to have
(24:04):
to decide what is worse for ourorganization.
Is it the negative goodwillthat's going to be created when,
when all these rate locks getcanceled, or is it the fact that
we're not going to lose 50million or 20 million or
whatever on that a hundredmillion loan package.
(24:27):
That's a decision that has to bemade, but and usually the bar
that's not locked in.
Is the one that's going tosuffer.
So don't be that MLO to causethat to happen.
And another challenge is highercosts of not locking in your
loan is higher cost.
What do you mean by that?
Well, okay.
You didn't lock it in at 7percent and that was the maximum
(24:51):
rate they qualified for.
Right?
So now 7 percent instead ofcosting 0.
5, now 7%, you know, we had aserious meltdown.
Now 7 percent costs 2.
5.
Right.
Or maybe it's not even availableanymore as an interest rate
option, which is even worse.
But if it's 2.
(25:12):
5, the cost and the borrower hadthe precise funds for a half a
percent in a loan discount, andthey don't qualify at a higher
rate, what are you going to do?
You can't go to a lower rate.
So usually what happens in thistime is, you know, cutting of
commissions, right?
To try to save the deal, but Howmuch commission is really being
(25:34):
made in the loan to make up a 2percent cost difference.
I don't think there's 2 percentthere available to give up and
still save the deal.
So again, the best solution isdon't get caught in that
situation and make sure that theloan is locked borrower has to
(25:56):
increase their down payment orclosing costs to qualify at the
higher rate.
And they'll not be able to do itif they don't have the
additional resources.
And the end results on notsuccessfully meeting these
challenges is that the borrowerbecomes upset, cancels the loan,
(26:18):
vows never to conduct business,nor refer a loan to the MLO nor
the company that the MLO was.
And then on top of that, besidesall the borrowing they're going
to do, they may go out intosocial media and just start
giving you bad reviews left andright.
And you know how those reallyspread like wildfire.
(26:39):
People aren't so apt to talkabout good things really fast,
but I'll tell you, once it'ssomething negative, they're
really fast to pull the triggerand let everybody know about how
upset they are and how bad theservice was.
Conversely, in our last slidehere, right?
(27:00):
There's our happy MLO, right?
And what did he do there?
He hit the target.
He, he hit the bullseye therewith his rate lock management
and everybody's happy.
So what are the benefits ofeffective rate lock management?
Well, you're going to minimizeinterest rate risk for the,
(27:21):
that's, that's what it's allabout.
Minimize the increase in thecost of the rate, minimizing
the, you know, elimination ofguidelines, minimize the
increase in the rate, just allthese things that are associated
with interest rate risk, you'renot going to have to worry.
And then, you know, especiallyif you want to be considered a
loan consultant, so you couldget all these referrals in the
(27:45):
future.
That's why all these are soimportant.
You want to be able to providecertainty.
To the borrower's financialplanning, right?
They thought it was going to beone rate on that property.
It's an investment property.
They're already calculated theirrate of, of, of return on their
equity investment.
And it was calculated as 6.
(28:07):
75%.
And now for a lot of differentreasons is at 8%.
And the buyer is even wonderingif he still wants to close on
the deal because now it's not assweet as he thought.
And then that really ties intogether with increasing
borrower profitability.
First is the certainty, right?
They want to be able to plan.
(28:28):
And then it's the profitability,right?
They're, they're, they're goingto have their, you know, their
financial stability, and they'regoing to have their increased
borrower profitability at that6.
75 rate that they thought theywere going to get from the
beginning.
And if you would have locked itin, By the time the file is
disclosed, that 6.
(28:49):
75 would have been available.
But unfortunately, what happenssometimes is the MLOs playing
the game of trying to lock it inafter it's already approved,
ready to go for only 15 days.
I mean, that is going to comeback and bite you so bad.
That's a double edged sword.
The best solution is clearcommunication with the borrower.
(29:12):
What they're gonna expect andwhat they're gonna get and be
able to deliver.
So, and then the reason for hissmile, right?
The last, the last bullet pointwhich I broke down into four
individual points there.
The reason for his smile isincreasing overall MLO
(29:34):
experience due to, right, higherearnings.
Right.
So he, I mean, it just makessense.
You're going to make more moneyif you have less deals falling
apart due to rate lock issues.
You're going to have higherearnings due to increased
(29:55):
referrals from satisfiedcustomers.
So no rate lock issues equalshigher earnings.
That same satisfaction that thecustomer got is going to result
in higher earnings becauseyou're going to get more
referrals and then the MLO.
Also is going to have higherearnings because you're going to
(30:16):
be spending more time onproduction and closings and less
time dealing with borrowerissues and complaints.
And last point, you're going tohave a more positive Business
outlook from the increasedsatisfaction of being a
successful loan consultant.
You're going to be happy doingwhat you do.
(30:38):
If all that happens to you allday long is people beating up on
you because of the rates, notwhat you promised them it was
going to be, then you didn't doyour job in effect.
The very last minute, you'regoing to have a lot of upset
people and you're not going tohave a very sustainable MLO
career.
So definitely if you want to belike our smiling MLO there.
(30:59):
Hitting the bullseye.
Pay attention to what we talkedabout here in this presentation
regarding effective rate lockmanagement strategies because
it's such a simple process ifyou are aware in the beginning
how it needs to be done and notwaiting to the last minute and
getting surprised.
(31:20):
All right.
Great.
Okay.
Looks like we got a couplequestions.
So let's pull them up here.
One second.
First question is in thetimeline when is the best time
to lock rates?
Well, again, that goes withcommunicating with your
borrower, right?
Communicating with the borrower,empowering them, explaining them
(31:42):
the, you know, the differentfactors that we talked about
that could affect the interestrate.
The could cause it to fluctuateand then ask the borrower when
they want to lock it in becausefor example, we're going over
the file that's going to getdisclosed tomorrow.
I'm telling the borrower.
Hey Mrs.
Barr, you're you're you're goingto get the disclosures either
(32:04):
tonight or tomorrow.
It's pretty much here.
It looks like it's going to beat 7.
5 percent rate at a cost of onepoint.
Are you fine with that?
Right?
They should be because theyalready agreed to it.
I'm just updating them nowbecause they may have accepted a
quote.
Now we're we've updated thecost.
We're about to disclose a file.
(32:24):
I'm reconfirming that the barwas good with that rate.
Then I'm gonna ask him.
Do you want to lock it in now oror do you want to wait?
And if you want, if you're happywith the rate that you have now,
we can lock it in and then youcan be guaranteed that you're
going to get that rate and letthem decide at that point what
to do now also depends on thetransaction.
(32:45):
For example, if it's a newconstruction.
And the home's not going to bebuilt for six months.
You're certainly not going to doa six month extended rate lock.
Some investors do offer those upto six months, but you know,
they come at a really high cost.
So if it is new construction,then you may want to discuss
that.
If the, if it is an option whereyou're submitting the loan to
(33:07):
lock it in for six months, thendiscuss it with the borrower, if
that's your scenario.
And make sure that you let themdecide after empowering them
with the relevant informationthat they need to decide.
So again, the best time to logit in is when the customer wants
to log it in.
If they know that's the ratethat they want an application,
(33:27):
then I would strongly recommend,especially on a refi.
I would strongly recommendempowering the customer and then
locking it in.
So you don't have any issuesthere.
All right.
Let's see here.
Another question.
Is it required to be lockedwhile it's being sold in the
secondary market?
Oh, great question.
(33:49):
That depends, you know, itdepends from investor to
investor, but that is a greatquestion because it brings up a
very critical component of ratelock management is.
Exactly that.
Also, some of the conduits thatthat we sell the loans to are
going to require the rate lockto be good through their
(34:11):
purchase of the loan.
Now, that's not the majority,that's actually the minority of
the case.
It require that most of themwill only require the lock.
To be good through theirreceiving the package through.
So the package gets signed,title company reviews it.
Everything's good.
(34:32):
They upload it to the investor'sportal nine times out of 10 that
right there stops the rate lockexpiration from ticking, but not
every case.
So be aware where you're sendingthe loan.
And if they have an out of theordinary policy towards that,
which some do, then your lockhas to be extended or locked in
(34:58):
to take into consideration thoseextra five, seven, in some
cases, 10 days that it may bein.
And if it's a nightmare thatsomething was missing and you
got post closing conditionsuntil they purchase it, it could
be two, three weeks until thatloan gets purchased and the lock
has to keep getting extended.
Okay.
(35:19):
Thanks for your time, Farron.
I don't see any other questions.
So I think we can go ahead andwrap it up.
Great presentation there, Jose.
Important to keep in mind,especially in this rate
environment.
So we appreciate everybodytuning in.
Remember, we do this Tuesdays,Wednesdays, Thursdays at 7 p.
m.
Eastern, where we go through anew loan officer training topic.
So we will see you tomorrow, 7p.
m.
Eastern, for the next episode ofthe Loan Officer Training.
So welcome everyone.
My name is Kyle Hiersche I'm theCOO of the Mortgage Calculator
joined here by our PresidentNick Hiersche and our Sales
Manager Jose Gonzalez.
We are a lender that specializesin non QM loans and what we do
every Tuesday, Wednesday andThursday evening at 7 p.
m.
Eastern is this loan officertraining series, where we do a
deep dive into a different loanofficer training topic.
(00:22):
And tonight's topic is going tobe effective rate lock
management, which is ever soimportant, especially right now
in this rate environment thatwe're in.
So, for joining us.
Jose, I will let you go straightinto it.
Let's talk about how to managerate locks effectively.
Good evening, everybody.
(00:43):
Thank you for joining us fortoday's training on effective
rate lock management.
As Kyle noted, with all of thisvolatility that we're having in,
in our lending environment, Itis always good to go back to the
basics and make sure that youare dotting your I's and
(01:03):
crossing your T's and notleaving money on the table for a
lot of the different reasonsthat we are going to cover in
this presentation on effectiverate block management.
There's some very, very criticalpoints to consider that in the
hustle and bustle of oureveryday life as busy mortgage
(01:25):
loan originators.
Some of us also as Realtors wemay tend to forget those basic
things like, you know, dottingyour i's and crossing the t's
that can result in your dealfalling apart.
So what exactly am I talkingabout?
Well, get into it, right?
First, let's add a little bit ofcontext, right?
Always like to empower myaudience so that you know
(01:47):
exactly what we're about.
So what exactly is a rate lock?
Right?
A rate lock is an agreementbetween a borrower and lender
that allows the borrower to lockin the interest rate on a
mortgage for a specified timeperiod at the prevailing market
rate.
(02:07):
And provides the borrower withprotection against a rise in
interest rates during the lockperiod.
Normally the longer the ratelock period the more expensive
the cost on the rate.
Usually you're going to see andsometimes you're the same.
It really depends on theproduct, really depends on the
moment.
(02:28):
But you know, you'll see the 30day price and then the 45 day
price and usually you're gonnahave a difference of anywhere
from a 0.125 to a 0.25 pointdifference in the cost of the
rate for the different timeperiods.
But like I did mention,sometimes there won't be a
difference.
You just have to really look atthe rate sheet, make sure.
(02:50):
where you stand.
Another term you're going to seethrown around, especially in my
presentation here, is interestrate risk.
Now that's what we're trying tominimize when we are locking in
these loans.
Interest rate risk is the riskthat market interest rates will
(03:12):
rise.
Which will cause a decline inthe value of the instrument, the
loan package.
So when, when that happens, theway to increase the value is, I
mean, if the, if the, if itchanges one way or another, then
they may charge you more for thesame.
(03:36):
That's how they maintain thevalue of the package.
So if the market decline and therates went up, Then the cost of
the rate will go up unless youwere locked in.
Pull through rate.
Now, this is very important forus definitely as lenders because
you don't want to have a lowpull through rate.
(03:57):
The pull through rate is thenumber of loan applications that
are closed and open.
Funded by the lender versus thetotal number of submitted loan
applications over a set periodof time.
And really, we're talking aboutlocked loan applications here.
I guess I should add that pullthrough rate is really concerned
with the number of loans thatyou locked.
(04:19):
And did you close all of thoselocks or did you break the lock
because either the file didn'tget approved or whatever reason
happened, the loan gotcancelled, it was a refi, loan
got cancelled, it was apurchase.
All of those cancellations couldaffect your pull through rate to
the point that if the pullthrough rate drops below a
(04:40):
certain point there may be apenalty placed upon the pricing
of that organization.
So, in other words, they'regoing to affect your pricing.
It's not going to be as good.
The higher the pull throughrate, you can negotiate possibly
better pricing, lower pullthrough rate.
You're probably going to havePricing and here the last point
(05:03):
here.
A very, very important point toconsider in rate lock
management, right?
This is really where themanagement comes up.
You're already locked.
You definitely want to keep aneye on, out to see what's going
on with the rates, right?
To see if you can take advantageof a float down because a float
(05:23):
down is a policy that allowsrenegotiating the lock.
Once a minimum thresholddifference has been reached
usually that pricing thresholdis usually at least a one point
betterment in pricing.
It's not a hundred percentacross the board.
Some, it could be a littlehigher, some it may be lower,
(05:44):
but typically what I've beenseeing is one point.
That means that.
If the current pricing for theloan is at least one point in
cost lower than when it waslocked in, then there is the
ability to renegotiate and beable to float down to the lower
(06:08):
cost rate or to the, or, or getthe lower cost for the same
rate.
But keep in mind, this is alwaysgoing to come at a cost.
The cost I've seen a lot oftimes is a half a point.
But it could be one point that'sgoing to depend on the investor.
It does vary from investor toinvestor as do the float down
policies also vary from investorto investor, because remember, I
(06:31):
mean, you're, you're locked in.
You know, and what may happen isthat if they don't have a float
down policy, they may end upwith canceled loans because the
customer says, forget about it.
I don't want to do it anymore.
It's not worth it.
Or some MLOs that getoverzealous and cancel at one
spot and, and start somewhereelse and submit and lock it out
(06:54):
somewhere else just to try tosave the money that way.
That's not what we want.
That's not an acceptableindustry practice.
That'll definitely affect yourpull through rate and could
cause you even to be canceledfrom submitting loans or put on
probation from submitting loansto a particular conduit.
If they find out that you'redoing that type of maneuver.
(07:16):
So you definitely want to alwayslook at the float down option
instead of just straight out,cancel the file just to take
advantage.
Thank you.
I'm pricing somewhere else thatmay be a little bit better.
So we, we recently had ourunderstanding, you know, market
(07:38):
fluctuations, interest rate, andwhat causes it.
So I'm going to condense thatdown to one slide here.
Because as we discussed in thatpresentation, understanding
interest rate fluctuations iskey, right?
There's it's not, you know, thatdifficult if you just follow
(07:58):
certain indicators andunderstand.
What you're looking at, right?
Usually that information isreadily available on a lot of
different websites and it doeschange throughout the day.
So what is interest, right?
Interest is the price you pay toborrow money and is typically
expressed as an annualpercentage.
What are the factors affectinginterest rates?
(08:21):
This is the condensed version,right?
Federal, the Federal ReserveBank through open market
operations sets interest ratesmanages the money supply,
regulates financial markets, andacts as a lender of last resort
during periods of economiccrisis, right?
(08:42):
They're going to monitor certainindicators in our economy and
then make their monetary policydecisions.
Based on those indicators,right?
And what are the things thatthey're trying, they're trying
to do, right?
Well, first and foremost,inflation, right?
They want to keep inflationbelow a certain target.
(09:05):
The target right now is twopercent.
So, the Federal Reserve countersinflation by raising Fed funds
rate when, which increases allother borrower costs down the
line.
Fed funds rate, the Fed fundsare, are the, that's funds that
banks lend and borrow.
(09:27):
You know, so the, the ones thathave an excess in capital
reserve will lend the money tothose that are deficient in
capital reserve requirements,they'll borrow the money via the
fed funds exchange, I guess youcould call it.
It's an overnight type loan.
That definitely affects bankscost to borrow their banks that
(09:49):
are always borrowing fed funds.
So obviously that's going to beone of their standard business
operating expenses.
The higher the fed funds rate,the higher the cost of money,
the higher, then it's going totrickle down and result in
higher interest rates toeverybody else.
And other component that thefederal reserve watches.
And it is the unemployment ratebecause the lower the rate that
(10:13):
equals more people working,right?
Which means hotter economy, morespending and higher prices,
right?
The higher the unemploymentrate.
And it's the opposite.
You would expect there to be acooling off of the economy, less
spending, and the prices toease.
That's the, the general theorythere.
(10:36):
So in essence, yeah, the FederalReserve is trying to increase
the unemployment rate whenthey're increasing the cost to
borrow because they want to slowdown the economy.
A lot of things come into play.
And the last bullet point thereis the gross domestic product,
which is basically the output ofthe of the U.
S.
(10:56):
economy, taking intoconsideration both the
manufacturing serve sector andthe services sector that is our
GDP.
So the GDP determines ourability to pay, right?
The better the gross domesticproduct, We have a better
economy.
We should be operating at somesurpluses.
(11:17):
We're not going to, thecountry's not going to need to
borrow.
So if, but if we do need toborrow more, the rate of the
instrument will need toincrease, right?
Because in borrowing more, we'rebasically issuing more bonds or
the U S treasury.
I guess is issuing more bonds,treasury securities, more
(11:39):
supply.
So you gotta, you know, moresupply means you're going to
have a lower value and then tobump the value back up.
You have to increase the yieldhigher yield makes the
instrument worth more, butunfortunately means higher
interest rates to our consumers.
(12:01):
So, again, make sure you checkout that training for that show
that we had on understandinginterest rate fluctuations for
more detail on this, but.
Definitely you have to have alittle bit of knowledge so you
can follow the reports.
So what are some strategies foreffective rate lock management,
(12:25):
right?
Well, analyze the market trendsand economic indicators daily.
The ones we were talking aboutand share these with your
borrower.
We always talk about empoweringthe borrower.
It should really be a decisionmade by the borrower.
Where you are basicallyenlightening them to the need,
(12:48):
empowering them with someknowledge so that then they can
Analyze everything and tell youwhat they want to do.
If they want to lock in now, ifthey want to lock in later, how
they want to do it.
But again, this leads veryimportant to the second bullet
point early in the process, notwhen you're approved, but early
(13:09):
in the process, before the loanis disclosed, you want to
communicate to the borrower, theneed.
To lock the rate and confirmwhen the borrower decides to
lock the rate.
They may like the rate that theyhave right now and the cost.
So as soon as the file isdisclosed.
And they sign and you sign andthe file is set up and
(13:32):
registered in the portal whereit's going to be submitted, then
we can lock in that file, right?
And that's what the customerwants.
Or maybe the customer says, no,Jose, you know, I'm following
the market or whatever they'relooking at.
And I really rather wait alittle bit more.
I want to wait right till beforeit's going to be ready to close
to lock it in.
Okay.
(13:53):
That's fine.
But you want to make sure thatthat communication is in
writing.
Like via an email and all thatkind of stuff.
Because what you don't want isfor the bar to say, Jose, you
never told me on May 28th that Ishould lock my loan.
And now look what happened.
It's going to cost me one morepoint.
And then I can go back to theemail and say, yep, here's the
(14:15):
email where I initially askedyou.
And here's a follow up emailwhere I said, Hey, listen, it's
been a few days.
There's volatility.
Do you still have it?
Still want to wait or what doyou want to do?
And here's your reply in bothinstances that you wanted to
wait.
So, you know, you're clear ofthat one, but you want to make
sure that you are not the reasonthat the borrower did not lock
(14:36):
because most borrowers, I mean,unless they're like really
experienced borrowers may not beaware of how the process really
works, right?
You're assuming they know, butthey don't know.
And they're assuming whatthey're usually assuming is that
when they get that loandisclosure package and it has a
rate.
They're assuming that's my ratefor this throughout this whole
(14:57):
process unless you tell themotherwise about when do you want
to lock the rate.
That's why it's so important tocommunicate.
Give yourself a cushion oflocking in right after the loan
disclosure, especially forpurchases and lock in for 45
days and not 30 days.
(15:17):
As the cost to extend the rateis two to three times higher
than the cost of the originallock.
So, what do I mean by that?
Okay, you go to check out on therate and it says, you know, 30
day lock at seven percent costto extend.
A half a point, 0.
5.
Then it says the same interestrate for 45 days may cost 0.
(15:42):
625, right?
A 0.
125 more for the extra 15 days.
However.
If you go to extend that lock,it could easily cost you 0.
375 and more depending on whatyou wanted to do.
If you wanted to do, you know,15 days, right?
A lot of times they're costingtwo, three, four, five basis
(16:06):
points that could cost dependingon the investor.
So be aware that, you know,typically we're seeing the cost
to extend Being two to threetimes higher than the cost for
the the original cost of theextra days, especially on
purchases.
I mean, unless you received anappraisal waiver on the file,
(16:28):
there's a good probability thatit's going to be tough to close
it in 30 days.
And you would probably want to,if you're going to lock it in
from the onset, right afterdisclosure, you probably want to
do a 45 day lock.
Not a 15 day lock.
Now my next bullet point isreally important.
On, you know, when you do yourproper consultation of the
(16:51):
borrower, because you want tomake sure that you properly
analyze their credit, theirincome and property type prior
to requesting the rate lock.
Why?
Well, what if you know, you lockit in at disclosure, you don't
have all the income dogs and allof a sudden the income comes in
(17:12):
different.
DTI is now not 35, it's 48.
Right.
It has a higher cost or worse.
Something happens when you doget the documentation or the
review that now the borrowerdoesn't even qualify for that
program.
Now you got to go throughanother program.
Maybe now you got to go backstatement or who knows what, and
(17:33):
maybe that, that conduit doesn'thave that program.
So now you got to cancel theloan there and take it somewhere
else.
You know, and that's going toaffect your pull through rate,
so don't be overzealous in youreagerness to quickly log in the
rate and then mess it up foryourself later when you have to
(17:55):
make all these changes and mostimportantly, it's not the last
one.
Because it's the leastimportant.
It's probably the one that tiesin all of them together.
Make sure you, you manage theborrower expectations throughout
the process.
That's a great strategy foreffective rate lock management
(18:16):
and just the loan in general.
And you know, keep them abreastthrough every milestone change,
anything that's happeningthrough the file, just so that
they're aware of what they canexpect.
Stuff like this, stuff like withthe appraisal, with the income.
With the rate lock differentthings and also obviously not
related to rate lock, but withthe closing, right, the closing
(18:39):
date, if there's going to be anykind of delays or anything like
that, make sure that you pleasekeep the borrower informed
throughout the process, that'sgoing to make it a lot easier
for you because what did thedelay.
is caused by the borrower, notby you.
And they're very well awarebecause you've been letting them
know through the process whatyou needed, when you received it
(18:59):
if it was good, if it was bad,the turnaround time and
underwriting, the turnaroundtime to review, the turnaround
time for the appraisal, all thedifferent things.
And then all of a sudden youneed to get an extension due to
an unforeseen delay, but theborrower already knew.
What was going on.
So it's not going to be an issuefor you when the borrower sees
(19:19):
the the Ellie with theadditional cost to extend the
rate.
Right?
So make sure you manage thosebar expectations.
So you can keep your dealtogether now.
What are some challenges?
And the end results of what canhappen, right?
(19:41):
I got the challenge in black andthe negative result in red.
Well, the first challenge isyou're talking about market and
interest rate volatility, right?
And our, I mean, if you look atthe last 30 days, Activity in
the 10 year treasury, you'regoing to know what I'm talking
(20:01):
about in volatility.
Well, market rate and interestrate volatility could result in
interest rates spiking and theborrower no longer qualifies at
the higher rate if you neverlocked it in, right?
This is now this I guess Ishould.
Backtrack a minute and this pageis more like what can happen if
you don't lock in the rate,right?
(20:23):
That's why it's a challenge inrate lock management.
So the first would be marketingit to treat volatility causing
an interest rate spike where theborrower no longer qualifies at
the higher rate.
And maybe can't afford to buy itdown to the lower rate, right?
So definitely you do not want aborrower who now is disqualified
from the loan because you didn'tlock in the rate and you were at
(20:46):
49.
8 percent DTI.
And now you're at 53 or 54.
So keep an eye on that.
What is another challenge wouldbe revision of guidelines.
You didn't lock the loan in andnow all of a sudden they
eliminated the 85 percent LTVDSCR, for example, or they
(21:08):
eliminated the use of short termrental on the DSCR.
Or who knows what can happenwith, when guidelines are
revised, a lot of differentthings can happen where a
program could be totallyeliminated.
So.
In this case, the, the conduitthat's lending the money.
(21:30):
They are tightening theguidelines to reduce interest
rate risk on their part.
Remember, interest rate risk iswhat happens for example, to
their value of their portfoliowhen interest rate changes.
What's the value of theportfolio of loans or that
particular value of thatparticular loan, which is
(21:52):
already locked in.
So sometimes what they'll do isthey'll revise guidelines.
And make them tighter, right?
Tightening of the guidelinereduces the risk.
Hence, the price on that loan orthat loan type.
Could remain the same becauseyou lowered the risk.
However, so that's good for theborrowers whose Guideline
(22:15):
tightening didn't disqualifythem from the loan, right?
That's good for the bar with thehigh credit score, for example
but the one who now maybe isbelow the Minimum credit score.
Maybe he was at a 640 now.
They raised it to 660.
He's out of gas Right?
And that's intentional becausethey want to increase the value
(22:37):
of the portfolio.
And the way to do it is reducethe risk.
And that's one of the ways to doit.
Another risk which I mentionedhere is the total elimination of
programs over here on the secondbullet point.
We're talking about revision ofguidelines.
The third bullet point we'retalking about loan programs can
actually disappear if you didnot.
(22:59):
Have the loan locked prior tothey're making the decision to
eliminate that program.
You all have seen the emailscome through where programs
eliminated.
Everybody whose loan is lockedwill be good.
Sometimes they'll tell you, makesure you don't have to get an
extension and we're not going toextend it, or sometimes they
will.
It's really case by casesituation.
(23:22):
But now I have seen in rareoccasions in extremely volatile
situations.
Where a conduit may actuallydecide to cancel rate locks and
not honor them.
Obviously they're going to losea lot of goodwill in the
industry when they do that.
(23:42):
But I mean, the end result couldbe they're allowing the bar to
close on a bunch of loans thatthey're just going to lose money
on one after the other when theygo sell it into the secondary
market.
So at that point, the, theinvestor, in this case, the
conduit.
Right.
That's that's I'm asking theloan packages is going to have
(24:04):
to decide what is worse for ourorganization.
Is it the negative goodwillthat's going to be created when,
when all these rate locks getcanceled, or is it the fact that
we're not going to lose 50million or 20 million or
whatever on that a hundredmillion loan package.
(24:27):
That's a decision that has to bemade, but and usually the bar
that's not locked in.
Is the one that's going tosuffer.
So don't be that MLO to causethat to happen.
And another challenge is highercosts of not locking in your
loan is higher cost.
What do you mean by that?
Well, okay.
You didn't lock it in at 7percent and that was the maximum
(24:51):
rate they qualified for.
Right?
So now 7 percent instead ofcosting 0.
5, now 7%, you know, we had aserious meltdown.
Now 7 percent costs 2.
5.
Right.
Or maybe it's not even availableanymore as an interest rate
option, which is even worse.
But if it's 2.
(25:12):
5, the cost and the borrower hadthe precise funds for a half a
percent in a loan discount, andthey don't qualify at a higher
rate, what are you going to do?
You can't go to a lower rate.
So usually what happens in thistime is, you know, cutting of
commissions, right?
To try to save the deal, but Howmuch commission is really being
(25:34):
made in the loan to make up a 2percent cost difference.
I don't think there's 2 percentthere available to give up and
still save the deal.
So again, the best solution isdon't get caught in that
situation and make sure that theloan is locked borrower has to
(25:56):
increase their down payment orclosing costs to qualify at the
higher rate.
And they'll not be able to do itif they don't have the
additional resources.
And the end results on notsuccessfully meeting these
challenges is that the borrowerbecomes upset, cancels the loan,
(26:18):
vows never to conduct business,nor refer a loan to the MLO nor
the company that the MLO was.
And then on top of that, besidesall the borrowing they're going
to do, they may go out intosocial media and just start
giving you bad reviews left andright.
And you know how those reallyspread like wildfire.
(26:39):
People aren't so apt to talkabout good things really fast,
but I'll tell you, once it'ssomething negative, they're
really fast to pull the triggerand let everybody know about how
upset they are and how bad theservice was.
Conversely, in our last slidehere, right?
(27:00):
There's our happy MLO, right?
And what did he do there?
He hit the target.
He, he hit the bullseye therewith his rate lock management
and everybody's happy.
So what are the benefits ofeffective rate lock management?
Well, you're going to minimizeinterest rate risk for the,
(27:21):
that's, that's what it's allabout.
Minimize the increase in thecost of the rate, minimizing
the, you know, elimination ofguidelines, minimize the
increase in the rate, just allthese things that are associated
with interest rate risk, you'renot going to have to worry.
And then, you know, especiallyif you want to be considered a
loan consultant, so you couldget all these referrals in the
(27:45):
future.
That's why all these are soimportant.
You want to be able to providecertainty.
To the borrower's financialplanning, right?
They thought it was going to beone rate on that property.
It's an investment property.
They're already calculated theirrate of, of, of return on their
equity investment.
And it was calculated as 6.
(28:07):
75%.
And now for a lot of differentreasons is at 8%.
And the buyer is even wonderingif he still wants to close on
the deal because now it's not assweet as he thought.
And then that really ties intogether with increasing
borrower profitability.
First is the certainty, right?
They want to be able to plan.
(28:28):
And then it's the profitability,right?
They're, they're, they're goingto have their, you know, their
financial stability, and they'regoing to have their increased
borrower profitability at that6.
75 rate that they thought theywere going to get from the
beginning.
And if you would have locked itin, By the time the file is
disclosed, that 6.
(28:49):
75 would have been available.
But unfortunately, what happenssometimes is the MLOs playing
the game of trying to lock it inafter it's already approved,
ready to go for only 15 days.
I mean, that is going to comeback and bite you so bad.
That's a double edged sword.
The best solution is clearcommunication with the borrower.
(29:12):
What they're gonna expect andwhat they're gonna get and be
able to deliver.
So, and then the reason for hissmile, right?
The last, the last bullet pointwhich I broke down into four
individual points there.
The reason for his smile isincreasing overall MLO
(29:34):
experience due to, right, higherearnings.
Right.
So he, I mean, it just makessense.
You're going to make more moneyif you have less deals falling
apart due to rate lock issues.
You're going to have higherearnings due to increased
(29:55):
referrals from satisfiedcustomers.
So no rate lock issues equalshigher earnings.
That same satisfaction that thecustomer got is going to result
in higher earnings becauseyou're going to get more
referrals and then the MLO.
Also is going to have higherearnings because you're going to
(30:16):
be spending more time onproduction and closings and less
time dealing with borrowerissues and complaints.
And last point, you're going tohave a more positive Business
outlook from the increasedsatisfaction of being a
successful loan consultant.
You're going to be happy doingwhat you do.
(30:38):
If all that happens to you allday long is people beating up on
you because of the rates, notwhat you promised them it was
going to be, then you didn't doyour job in effect.
The very last minute, you'regoing to have a lot of upset
people and you're not going tohave a very sustainable MLO
career.
So definitely if you want to belike our smiling MLO there.
(30:59):
Hitting the bullseye.
Pay attention to what we talkedabout here in this presentation
regarding effective rate lockmanagement strategies because
it's such a simple process ifyou are aware in the beginning
how it needs to be done and notwaiting to the last minute and
getting surprised.
(31:20):
All right.
Great.
Okay.
Looks like we got a couplequestions.
So let's pull them up here.
One second.
First question is in thetimeline when is the best time
to lock rates?
Well, again, that goes withcommunicating with your
borrower, right?
Communicating with the borrower,empowering them, explaining them
(31:42):
the, you know, the differentfactors that we talked about
that could affect the interestrate.
The could cause it to fluctuateand then ask the borrower when
they want to lock it in becausefor example, we're going over
the file that's going to getdisclosed tomorrow.
I'm telling the borrower.
Hey Mrs.
Barr, you're you're you're goingto get the disclosures either
(32:04):
tonight or tomorrow.
It's pretty much here.
It looks like it's going to beat 7.
5 percent rate at a cost of onepoint.
Are you fine with that?
Right?
They should be because theyalready agreed to it.
I'm just updating them nowbecause they may have accepted a
quote.
Now we're we've updated thecost.
We're about to disclose a file.
(32:24):
I'm reconfirming that the barwas good with that rate.
Then I'm gonna ask him.
Do you want to lock it in now oror do you want to wait?
And if you want, if you're happywith the rate that you have now,
we can lock it in and then youcan be guaranteed that you're
going to get that rate and letthem decide at that point what
to do now also depends on thetransaction.
(32:45):
For example, if it's a newconstruction.
And the home's not going to bebuilt for six months.
You're certainly not going to doa six month extended rate lock.
Some investors do offer those upto six months, but you know,
they come at a really high cost.
So if it is new construction,then you may want to discuss
that.
If the, if it is an option whereyou're submitting the loan to
(33:07):
lock it in for six months, thendiscuss it with the borrower, if
that's your scenario.
And make sure that you let themdecide after empowering them
with the relevant informationthat they need to decide.
So again, the best time to logit in is when the customer wants
to log it in.
If they know that's the ratethat they want an application,
(33:27):
then I would strongly recommend,especially on a refi.
I would strongly recommendempowering the customer and then
locking it in.
So you don't have any issuesthere.
All right.
Let's see here.
Another question.
Is it required to be lockedwhile it's being sold in the
secondary market?
Oh, great question.
(33:49):
That depends, you know, itdepends from investor to
investor, but that is a greatquestion because it brings up a
very critical component of ratelock management is.
Exactly that.
Also, some of the conduits thatthat we sell the loans to are
going to require the rate lockto be good through their
(34:11):
purchase of the loan.
Now, that's not the majority,that's actually the minority of
the case.
It require that most of themwill only require the lock.
To be good through theirreceiving the package through.
So the package gets signed,title company reviews it.
Everything's good.
(34:32):
They upload it to the investor'sportal nine times out of 10 that
right there stops the rate lockexpiration from ticking, but not
every case.
So be aware where you're sendingthe loan.
And if they have an out of theordinary policy towards that,
which some do, then your lockhas to be extended or locked in
(34:58):
to take into consideration thoseextra five, seven, in some
cases, 10 days that it may bein.
And if it's a nightmare thatsomething was missing and you
got post closing conditionsuntil they purchase it, it could
be two, three weeks until thatloan gets purchased and the lock
has to keep getting extended.
Okay.
(35:19):
Thanks for your time, Farron.
I don't see any other questions.
So I think we can go ahead andwrap it up.
Great presentation there, Jose.
Important to keep in mind,especially in this rate
environment.
So we appreciate everybodytuning in.
Remember, we do this Tuesdays,Wednesdays, Thursdays at 7 p.
m.
Eastern, where we go through anew loan officer training topic.
So we will see you tomorrow, 7p.
m.
Eastern, for the next episode ofthe Loan Officer Training.
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