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Rate & Point Lock Letter…………Got To Have One!!!

I continue to hear Realtors talk about their Buyers getting to the Closing Table and their Interest Rate is different from what they were originally told. In a day where information is available at a click of a mouse button this should never happen. Buyers need to take the time to educate themselves before they make the most expensive purchase that they have ever made in their lives. If they do, or we who are helping them make that purchase provide them with the necessary advice, an Interest Rate change without their prior knowledge would never happen. Let me explain why this should never happen.

We have read many articles and blogs about how important it is for a Borrower to always get a Good Faith Estimate and Truth In Lending Statement. Well equally important, if not even more important than the two disclosures mentioned is a third disclosure, a “Rate & Point Lock Letter”.

A Rate & Point Lock Letter should contain and disclose the following information. It should state whether or not their taxes and homeowners insurance are being Escrowed or whether they are waiving it. It should state whether their Interest Rate has been Locked or whether they are Floating the Rate. The Borrower needs to make sure the Interest Locked box is checked if this is the Interest Rate that they expect to receive. The Rate and Point Lock Letter should also state what points are being charged on top of the Interest Rate that they have selected.

Now even though all these things are disclosed on the Rate & Point Lock Letter, this alone does not prevent a Lender from changing the Interest Rate and or Loan Program at the last minute. In order to prevent a Lender from changing the Interest Rate and or Loan Program a Borrower needs to make sure that one more section has been filled in on the Rate & Point Lock Letter. On my Rate & Point Lock Letter that section is at the very bottom, and it is titled “Alternative Mortgage Programs” and it contains the following:

If the (insert name of Lender/Bank) determines that my application does not meet the standard underwriting criteria for this (insert Loan Program) mortgage loan program, it may offer to make a mortgage loan to me/us under an alternative program.

Now here is what the Borrower needs to make sure is checked off:

I ______ DO or ______ DO NOT want to be considered for an alternative program that will have a higher rate or points than the program for which I am applying.

I always advice my Borrowers to check off I DO NOT, because if I have to turn to a different loan program, I feel that it should be their decision if they want to do that or not. And if they choose to go with the new loan program, then they need to get a new Good Faith Estimate, Truth and Lending Statement, and Rate & Point Lock Letter.

The Rate & Point Lock Letter also needs to be signed by all the Borrowers AND the Loan Officer. If all this is done a Lender/Bank CAN NOT surprise a Borrower at the Closing Table with a different Interest Rate or Loan Program. If they do it is fraud, and they are open to litigation.

Help protect your Buyers from last minute Interest Rate and Loan Program changes, by making sure that they have a signed and properly filled out Rate & Point Lock Letter. Otherwise they are open to last minute surprises at the Closing Table.

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Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

Posted by George Souto on 07/04/2007 05:43 PM

Comments (117)

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Originally posted at: George's Blog: Rate & Point Lock Letter…………Got To Have One!!!

This post has been included in Connecticut Information Middlesex County, CT Information

117 Comments on Rate & Point Lock Letter…………Got To Have One!!!

JUL

2007

That's right George! I always make sure to "prep" my clients so they know about getting the GFE and Truth in Lending....the Rate and Point lock letter is a must as well! I tell them to follow up with the lender as well!

Your stuff is always so useful. I always send links to your blogs to my buyer's agents! You should write a book! hmmm, I think I've suggested that before.

George,

I'm usually on the listing side but I have been to a few closings where they were told the interest changed right at the table..... I even witness through a glass door the buyer yelling at the loan officer who came to the closing...we still closed but their buyer was upset.

Sally, glad to here that you do this, because there are many Realtors that don't.

Linda, thank you for saying that you find my Post useful. Your comments always make my day :)

Neal, a Buyer should never get this type of surprise. This Loan Officer was pretty brave, they usually don't want to be any where near the closing table when they do this.

YAY George! Tell them all about it! I preach lock-in letters and loan commitment letters.

Now for the other side. As a listing agent, all counter offers now contain a demand for a lock in letter and a loan commitment letter from the buyers lender. Bottom line, if the lender actually had the loan I get it. If the lender is B.S'ing the buyer, everybody finds out early in the game and nobody gets hurt.

I gotta tell you though, I have heard some whopper stories about why they cant provide these items. All BS of course.

In Arizona, the contract "requires" that a Loan Status Report be included.

I have never seen a letter like you mention. But then, I've not encountered the difference in an interest rate like you describe at closing. The buyer is always in on the loop - if it's my buyer.

Buyers are required to have met with and provided all documentation to the lender before they are even taken to see a home. In my case, most of my buyers use a loan officer I know, so I am familiar with how she works. As a listing agent, when an offer is made, that LSR must be submitted and signed by both buyer and the lender and must be submitted with the contract. On the LSR is the "up to" rate as well as the terms.

In Arizona, the close of escrow date is an actual close of escrow...not a target date. Lenders are required to have the loan docs at title four days prior to closing.

As far as the Good Faith, of course. Just for what it's worth.

Excellent post George, this should be read by everyone involved in a transaction.

Wow, good stuff, you always have good stuff. I have to add, I have run into a few lenders the past two months who have gone overboard to extend loan dates a bit because of unusual circumstances not related to my buyers. That's pretty cool too. Thanks for the correct terminology on this.

We just collected escrow because we noted that the other realtor did not inform the buyer of the timelines in the commitment clause.

Laurie, you are a very wise in doing that, and yes it is B.S. if they tell you that they can't provide it. When they say that, it is time to start asking a lot of questions. I wish all Realtors followed your procedure, transactions would go a whole lot smoother.

Teri, It sounds like Arizona has a very good procedure, but that is not the normal procedure over here. Working like you do with a Loan Officer that you trust will also eliminate a lot of last minute surprises. You have been very fortunate to not have some of the surprises that some internet lenders are well known for. I am not sure what a LSR is but it sounds like it is what we call a Loan Commitment Letter. Yes it does state a maximum up to rate on it, but that is only to state what the rate can go up to and still be qualified for that loan program, it is not a guarantee that the Rate has been Locked.

Dena, thank you.

Carole, I just had to do that also on a loan. A problem came up with the loan for the buyer that was purchasing the house that my Borrower was selling. We had to extend the Rate Lock on my Borrowers Loan in order for their Buyers to have enough time to get their loan in order. The cost to extend was a half a point and we absorbed the cost.

Neal, you got to love those Lazy Agents. There are enough things that can go wrong without creating more.

George, I loved seeing both you and your good friend Linda's faces up on the dashboard. Can you both do that again sometime soon please? =)

Congratulations on your featured post. This is the kind of information that makes one invaluable to a client. Searching for homes can be done online pretty much by anyone. This type of knowledge brings extra value to our services. Excellent post!

the letter you described differs a bit with us. there is a rate lock/float letter. you would then reference the gfe for points and other charges. if the program changes for any reason we redisclose all terms.

we conduct a client interview before closing. the client is not allowed to walk into a closing without both knowing and accepting the terms.

as for the realtors involved, quite frankly i'm not aware of many realtors who are fluent in lenders rate lock policies.

Good ethics and business morals will get you better business all the time!!

Great post, George......

=-)

I had never heard of such a letter...but you can bet my preferred lenders will be getting the link to this post to talk further about it! Learning something new every day-thank you!

One of the defaults we had last year was an investor buyer who refused the agent and lender's advice to lock in about 20 days prior to settlement. Rates were going up.

She wouldn't listen. She couldn't get the rate she wanted at settlement and defaulted. Cost her about $25,000 in damages to the seller.

This just one more reason that McCue Mortgage is such a good pace to work. The Rate and Point Letter is a very critical document. It spells out exactly what has been discussed between our clients and us. Good post.

Maggie, I have subscibed to your Posts so I will be commenting on them in the future.

Jay, we follow basically the same policy, but unfortunately there are Lenders that do not do that and that is why that all those involved in the transaction should have as much knowledge as posible to help protect those Borrowers.

Alex, I agree, lets hope more follow those principles.

Leigh, I am sure that your Lender will be able to provide you with a copy of one so that you can become familiar with it.

Lenn, I have had that only happen once, because most of the time my Borrowers take my advice and Lock the Rate right away. But just like in your case it was an uncomfortable situtation the Rate kept going up and by the time they finally Locked the Interest Rate was 3/8 of a point higher.

Phil, you are right we put everything out on the table so that everyone is as informed as they can possibly be. Thanks for the reinforcement.

Anytime, George. Hope July is off to a good start for you.

Also, who is the Mortgage Loan Rep. in the photo? I don't recognize him. He is much better looking than any of us McCue Rep's. :)

Geoge, Yet another great post. I have bookmarked this to remind myself. One more thing to enlighten my buyers.

LOL.......Phil, do you think that I should try to hire him for the New Haven position that I am trying to fill? :)

Karen, as long as we keep on sharing what we know, we will all learn things from each other that can help our clients.

I have heard of people doing this. They will quote a rate and when it gets time to close the buyer has to either close or lose a lot of money. I don't think that a reputable Broker/Lender would do this. I let my customers know upfront on my GFE, Rate-loan type and pretty close on the closing costs. I don't float rates, So, I don't have to worry about the rate changing.

I had a deal that I locked and had to change the loan path. I stayed true to my rate But, I did the loan for almost free. It isn't always about the money. For me it is about my word. I don't play games with people or their money. If I say I can do it at a specific rate. That is the rate we will see at the closing table.

If you are not sure about a Mortgage Broker in Florida, You can go to the Florida Office of Financial Regulation. If the Broker is shady, there should be complaints listed.

I agree and disagree George

I agree that this is a way to make 100% certain that the rate won't change at the closing table

but... I have more clients willing to see if they can get a lower rate by floating than I have that want to lock ASAP.

Also, the real issue for me is that if I disclose 6.5% ... that's what they get. Even if it costs me some of my commissions to make it happen.

I think there are too many people out there not offering the necessary disclosures and shortcutting the system.

That was a great idea.I had given that thought before but then it escaped me of doing it. I will put the idea to use in my Buyer presentation packet as a special reminder. Good post and thanks for the reminder

Happy 4th of July and thank you for the post. I am a real estate agent and a notary signing agent and I hear people say all the time "this is not the rate I was quoted" at the signing. And generally they will go ahead and sign, because it is at the signing time and they don't want to waste more time or lose the loan. I would hate for that to be one of my purchase closings.

Shaun, you do business the way it should be done honest and up-front, but their are those who choose a lesser road. You are right it is not always about the money, it is about keeping our word and earning the trust of those we do business with.

David, as long as they understand what they are doing when they choose to float the rate then it is their risk as far as I am concerned. But the purpose of this Post is to try to prevent others from making that decision for the Borrower, and not disclosing to them that the Rate is being Floated and not Locked. I always give them the choose it is their decision not mine, but I do advise them to Lock when we meet for them to sign the Loan Doc's.

William, your welcome and I hope it proves useful for you.

Rosemary, thank you for verifying this problem. I hear this fairly often especially when Borrowers shop around for what they think is the best rate instead of dealing with people who are known for being reputable Lenders.

George - this is excellent information, as you always provide. I, too, have had a couple of bad experiences where the rate changed, andI expect that I should have been more vigilant and aware of what was going on. Certainly my buyers had no clue. Thanks for this valuable advice. All agents and buyers should read this. Bookmarked for re-reading.

Jeff

Excellent post George! I'm relaying this to all my peers who may not have the luxury to read it. Great job, insight, & information! There is a lot I can learn from you.

Jeff, hopefully Realtors will start to ask there Buyers if they have received documents like this, and maybe it will help to cut down on some of the shady things that take place sometimes. Glad that I am able to share some information with you that you find valuable, because you have provided valuable information to me.

Jason, thank you for stopping by and I am always available to answer any questions you might have.

JUL

2007

Yes, Arizona has a pretty good system to deal with these things ~ perhaps better than some other states.

Outstanding stuff. I just forwarded it to my lender to talk about.

Bob & Carolin, it sure does sound like Arizona has a better system in place than most other States.

John, I am sure that you Lender will probably be able to explain this in more detail to you and give you a better understanding of it.

I know about the GFE but will check with my people about the rate and lock letter.

Denise, yes please do because the GFE does not protect your Buyers against Rate or Program changes, it only discloses the rate and costs of the program that is being offer to them at that time. That could change the next day if they do not have a signed Rate & Point Lock Letter telling them that their Rate and Points have been locked it and the area that says "I DO NOT want to be considered for an alternative program that will have a higher rate or points than the program for which I am applying" checked off.

Ahhhh,,,,

Our buyers had a rate/lock letter...letter of pre-approval btoh quoting same rate..l0 days before closing the lender said their investor forgot to lock the rate so they couldn't honor...this went back and forth to the loan committee twice ! Bottom line is the lender would only agree to proceed IF our buyer signed a note saying that they would not sue....which they had planned on doing especially since buyers' brother was a lawyer....Rate and Lock is apparently only a good thing if you have a lender who is honorable enough to honor the rate they have quoted.

Sally & David, that Lender only agreed to proceed because they would have lost that Law Suit big time if that Buyer had taken them to court. Not having Locked the Rate after the Buyers and the Loan Officer had signed it is a problem between them and their Loan Officer or who ever it was that was suppose to Lock the Rate. They might have tried to wiggle their way out of it, but in the end they would have lost more than just the difference in the cost for the Rate. The Buyers had them with a signed Rate & Point Lock Letter no matter what they said.

But this is also another example why Borrowers should deal with Lenders who can be trusted instead of who has the lowest Interest Rate.

Hi George, this is not an unusual occurrence. If I represent the buyers I make sure they understand the HUD-1 before we hit the closing table. That is went the closing costs are exposed and they can ask questions. I am not always involved in the finance side. I know so many of the lenders that if I do not recognize the name I ask if they liked the lender. They will tell me yes or no and why will follow shortly after the question. This is a great post.

Gary, that is a great service that you provide to your Buyers by going over the HUD-1 with them before the Closing, more Realtors should follow your example in doing that.

Great post George. I go over the HUD-1 with my clients before closing to make sure that all is done right. Any questions they may have can be answered ahead of time. I like smooth sailing.

Dianne that is a very smart thing to do. I attend my Closings and I also do not like any surprises.

Mortgage George...

Well said. There should never, as in ever, be any surprises at the closing table. It is our responsibility to insure that does not happen. If we are not doing whatever we can to 'lock it' then we're not doing our job :)

Hmm. I find myself wondering if a customer should sign a statement that they have 'chosen' to float it?

P.S. It's just the Blog Log. The Blog Log will only acknowledge me if I have 'their' cookies on my p.c. which I don't. That was one of the things I learned on Ed's post :)

TLW...ROAR!

TLW, there is an area on my Rate and Point Lock Letter that also discloses it they have chosen to Float.

Glad to here that. So that should mean that if I go on your page then the widget will not leave cookies behind since you do not have it any more, correct?

The only way it would leave cookies is if I had the blog roll widget on my sidebar. Which of course I don't :)

I really appreciate the information in the blog. I think many buyers are unaware of this type of 'dislcosure". This certainly is something that buyers should be aware of and know how to protect themselvles. I have never had this happen to a buyer, but I have read several blogs about this recently. I will be sure to discuss this with my clients.

TLW, expect to see me dropping by again.

Joan, consider yourself lucky, and hopefully you will never have to experience this.

JUL

2007

Mortgage George...

Reciprocal comment time :)

As I have already commented on this I am going to goof around on the title of your post :)

"Aim...Ready...Fire...BAM...Got To Have One" :)

TLW...ROAR!

TLW, with a title like that I am sure I would have gotten a lot of curious visitors stopping by to see what you have to have......LOL

great post especially right now with banks changing their guidelines on a weekly basis. Make sure you get your clients what they told they were going to get.

Adrian, if the Borrower does this they can hold the Lender/Bank feet to the fire if they try to change it on them.

Hey George, I am sorry to not be here on the rain often, also, I want to give my opinion on your blog, very interesting topic as always, if I was a consumer about a mortgage, well first of all I understand very well the process and everything about mortgages, but lets suppose that I do not have enough information about mortgages or I do not know very well how the process works, I would like to be explained from A to Z, if rates can change in the process, what does it make the changes on interest rates, being "you" the mortgage broker, you can explain customers that you can not warranty any rate until you lock it and that is in the middle of the process or at the beginning, but depending on the Lock rate it is the interest rate, you can have a penalty for lock it for many days or you can reduce the penalty if you lock it in the middle of the mortgage process, depends what they want and their needs, giving the options is the best way to go with a customer, they can chose and later on they can not blame you, I hate when mortgages brokers warranty a rate unless they lock it for enough time. there are some rippers out there who warranties a rate that does not exist to catch out some or many prospects that become later customers and at the closing table they get a surprise, sometimes when you are so honest, they do not believe you, because there are many of them who lie,

excellent blog my friend :)

Ray, as always you make some great points. Yes we can give a credit if a borrower can live with a 45 or 30 day rate lock instead of the normal 60 days. Also we can go beyond the normal 60 days with an added fee. Buty I would say that over 95% of the Sales Contracts that I look at, the Closing Date is between 45 to 60 days from the date they they go under contract. On refinances I am always able to give back a credit on the Rate Lock because we can all most always Close within 30 days.

You are also correct in stating that being honest sometimes costs us business, but I would rather be honest and lose the business then lie to get it. I like to sleep at night........LOL

JUL

2007

George,

Excellent as always! Information that I can and will use...thank you so much!

Monika, I am glad that you feel that this can be of use to you, let me know if there is any other information that you would like to have.

I wrote this while wearing my Yankee hat.................LOL

Go Yankees :)

Amen.

How did I miss this? my dear friend? I love how you simplify things George - you are truly THE master of loan terminology translation...and I mean that. We had some customers not long ago that were almost tricked into accepting a higher Interest Rate at closing and Rick just happened to have a copy of the Rate and Point Lock Letter which the customer had given us to check over. It was a great moment.....and can you believe the LO was a friend of the customers?

Tchaka, that one word truly says it all, thank you.

Cheryl, it would be my pleasure to assist you if the opportunity should ever present it self.

Ines, unfortunately yes I can believe that. I did a loan for a Borrower a couple of months ago that someone who was a friend of theirs put them into a Suprime Loan two years ago and these people had Credit Scores in the high 700's. How these people can live with themselves is beyond me.