You can start out shopping for a mortgage, collect rates on the Internet, talk with loan officers, and so on, but you do not know what rate you will get until you actually lock in your loan. So what is the problem?
Many lenders, especially the big banks, are severely backlogged. They reduced staff in 2008 and simply do not have enough people to handle the huge influx of loans that has occurred in 2009. I talked to a friend who is a senior executive with one such "big bank" and he said they had 200,000 loans in the pipeline. That is over 90 days worth of loans.
What does that mean to you? It means that if you were to apply there today, you will have to wait until 200,000 other loans are processed before they start working on yours. It also means your loan will not get funded for at least 90 days.
Now let's look at this from a lender's perspective. They have 200,000 loans in the pipeline. They know that behind each of those loans are 1+ frustrated borrowers. Here's what they also know:
They know that those frustrated borrowers are still shopping. They know that they will not close all 200,000 loans, even if all were approvable. To offset the likelihood of run-off, in some cases lenders charge a non-refundable application fee. The sole purpose of that fee is to try to keep people "in line" and keep them from straying. Or if they do stray, at least the bank has a few dollars to cover some of the processing costs.
The other thing in the mix is quoting and locking. When they quote rates, it's today’s rate based upon an immediate close. What they don't tell you is that the rates for 45-day, 60-day, and 90-day locks are higher. The rate for a 90-day lock could be higher enough that you wouldn't want to lock in even if you could. So how valid is that low quote they gave you? It's meaningless.
This isn't exactly a scam, but look at it this way. They are luring you to apply based upon low rates today. It may be a teaser because you may not be able to get that low rare when you are ready to close. You will have to take whatever the rates are 60 days from now when you are eligible to lock. In fact, as I write this, rates just jumped up and my guess is that if they don't go back down a bit, they will lose thousands of those loans because they are no longer as economically attractive the borrowers.
That isn't good for the lender either. They really would like to do all 200,000 loans. So why don't they let you lock today? Because they also know from past experience with high backlogs that as soon as they let you lock, you will start shopping again. Maybe YOU wouldn't, but tens of thousands of people will call lenders and say, "I’ve got a loan locked at 5 percent. Can you beat that?" And maybe the market will be such that they can beat 5 percent. In that event, the big bank just lost a loan.
In fact, if the market moved so much that one guy decided to switch, it is likely that thousands of other people would switch too. That's thousands of lost loans for the big banks.
Advice: You need to put this factor into the shopping equation. The
questions you should ask when you call a lender are: "How big is your
backlog? When would my loan be approved if I applied today? When will
I be able to lock in my rate?" If they say you can do a long-term
lock, ask them: "What is the rate? What is the rate for loans approved
today?"
I think that you will likely end up dealing with the lender who can deliver your loan sooner rather than later. And you'd better avoid dealing with someone who has a great rate but won't or can't lock you in. It's likely that it's a scam.
Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrowerarticles, Randy is a mortgage broker who has financed over $1 billion
in properties. He writes about home buying and real estate finance
topics for CreditBloggers.com.
Randy Johnson Randy is a Credit.com contributor and seasoned mortgage expert. He writes about home buying, mortgage laws and real estate finance issues. He has financed over $1 billion in properties, is the author of How to Save Thousands of Dollars on your Home Mortgage and he is a feature columnist for Savvy Borrower.
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