Is Lock Jumping Ethical?

Question

I responded to a recent blog post from a mortgage broker urging his clients to lock rates in now. This is a common refrain from brokers that don't want clients to wait for rates to possibly decrease. Rates could obviously go either way and there is no way to predict which way it will be.

Lenders frequently want a short lock window to decrease their exposure to rate fluctuations and they reward borrowers for accepting the shorter lock period with lower rates. However, the underwriter is frequently the long pole in the loan process and they let things slip past the lock period if it behooves them to do so.

Given that the bank and underwriter hold the stronger position in this type of transaction do you think it is okay for a borrower to continue to shop for new money through another lender and lock jump if they get a better deal?

Thoughts? Opinions? Is this ethical?

Account Closed · Answer

I think it should be a two way street. Lenders effectively lock jump by delaying funding, as you pointed out, borrower should be able to do the same. Similarly, when buying an REO banks often want a daily penalty for not closing on time, that should be a two way street also, if they can't close on time (THEIR escrow can't get off the dime, bank can't figure out how do sign the transfer deed) they should pay the same per diem.

Jason S. · Answer

I really feel no love for the loan broker's. I have heard their plight but they feed on people and maximizing their returns at the expense of others every chance they can get. The only reason I want them around, even though I believe they will be extinct soon unless the get the Dem's out of office, is because they add competition to the marketplace. Without them rates would be much higher, even though, they do abuse their clients to the maximum possible margin. In the end, rate jump away, if that broker could squeeze an eighth out of you they would in a heartbeat and call it good business.

Scott Mendez · Answer

Lets break it down this way. it is not ethical for a broker to write a loan for a borrower with one lender and locking it, then have the broker submit the package to another lender and locking it because rates drop. so with that said, no i don’t think it’s right for the borrower to do so even if there is a substantial difference. Most lenders/banks have renegotiation policies in place and all the borrower needs to do is have that conversation. (most policies start when there is a 1 point in pricing difference. That is a rule of thumb and may vary) now if there is a break down in the relationship or communication between the borrower and the broker/bank, then that is a different story imo.

Bryan Hancock · Answer

There is not risk of rates going up if you lock jump. Am I missing something? You only jump IF rates go down.

Scott Mendez · Answer

brokers will be a thing of the past and will be part of conversations of "remeber when...." (this will really open up the hard money world imo given current guidlines and investor overlays) with that said, most BANKS (not brokers) do not even have 15 day pricing on their rate sheets any more and havent had it for some time since the 08 rate rally. There are even a few that know the back log issue's that could come from additional rate rally's like the one 2 weeks ago and are using the same pricing for 45 day locks as the 30 day lock. I am a lender and have been for 13 years. My conversation when i go over locks is simple. I give them all the market information on what effects rates and go over their options and the difference in the .125 in rate if it goes down and .25 if it goes up (rates have the bouncing ball effect, when they go down they go slowly by under reacting and when they go up, they bounce up usally higher and over reacts.) then the last thing i say to them, is that extra possible drop of .125 in rate worth the risk of the rate jumping .25? is getting 4.875 that much better then 5% and worth the risk so you can have a party conversation that you are under 5%? once you break it down to them, the educated borrower makes the right call. so at the end of explaining everything to them at the end of the day i tell them, locking is their call. im either the hero or the goat when telling people to lock and being the goat is never fun. so it is their decision based off all the information i give them. so if the rates go down then the conversation goes back to them. I have been doing it that way for years and only had a handfull of people ever go with another lender because of rate (usally because the market was insane such as the 08 rally). the reality is, .125 in saving is not worth the risk of jumping up. i had borrower on a 1.7 loan lose out on a .75 rate drop on their loan because they "thought" it would drop an additional .125. the next day rates went up .25. they have been kicking themselvs for the past 2 weeks and wishing they took my advise. sorry, i can talk mortgage shop all day...