Rates~ Too Good To Be True if you can't Renogotiate your Lock?

Mortgage and Lending with Academy Mortgage Corporation

If you have your Loan Officer (LO) lock in an interest rate on your approved loan and find out that rates dropped another .75% from 5.5% to 4.75% would you urge he/she to change banks to get the lower rate?

Are you aware of Rate Lock Renegotiation (RENO) and is your Mortgage Broker/Banker proactively looking to save you money by renogotiating your rate? This applies to VA and Conventional Loans.

As a mortgage broker this recent drop in rates has been both a blessing and a challenge. Fortunately, refinance applications have increased substantially, yet although rates have hit all time lows (4.375% with no points 12.17.08 and now back up to 4.875% at the time of this blog 12.29) many people are anxious to lock but are sitting on the proverbial fence nervously waiting for bonds to move higher and interest rates to drop further.

The major challenge to (ethical) Loan Officers is presented when we lock a rate, per the request of the client, and then interest rates continue to fall. If the bank the loan is approved with has a RENO Policy then RENOgotiate it is (See Below for example). If not, do I maintain the rate or switch banks and lock elsewhere to save the client money? 

Many of the nefarious types have been weeded out of this business, however you may be working with a Loan Officer who keeps the same rate and tells you that once you are locked there is nothing he can do (meanwhile he switches banks and harvests a much larger rebate from the bank). On the other hand you could be working directly with a bank that simply does not have a RENO policy in place which requires you to maintain the higher rate. One more scenario that I must succumb to as a broker is an internal bank/broker rating system. We Brokers are rated with each bank on our pull through ratio ( # of locks that actually close), and once your ratio drops below 70% the lender could terminate the business relationship. The practice of locking in an interest for safety then pulling that loan and submitting and locking with another bank on price is now "extremely" frowned upon and is becoming difficult. I am forced to start favoring banks that have RENO policies in place even if there rates are slightly higher.

If rates drop during the rate lock period and the broker requests a lower rate, the loan can be renegotiated for a 0.375% - .625% fee. This fee can be built into the discount/premium quoted. This policy cannot be used to increase the compensation for the broker.
Broker may raise the premium to cover the 0.375% fee, but may not make more than the original premium.

Depending on the amount of market movement, the new premium may be lower than the original premium. If the increase in premium is insufficient to cover the 0.375% fee and provide the broker their original premium, the full 0.375% fee will still be charged and the broker will receive a lower premium.

Here's the rules:

* Market rate is lower compared to rates at the time of rate lock (improved market).
* Loan will maintain original lock period and expiration.
* Only available on loans with locks of 60 days or less.
* The broker rebate will be capped at the original price.

* Limit one renegotiation per loan.
* File must be received
* Expired locks are not eligible for renegotiation (loans that have been extended prior to original expiration
are eligible).
* Loans that have been Worse Case Priced for any reason are not eligible for renegotiation.

(Lock Renegotiation Policy, CitiMortgage Wholesale Lending 2008)

Currently Citi, Wells Fargo, Metlife, BOH, Plaza and a few other large banks are accepting Rate Renegotiations. Other banks sush as Central Pacific Bank, FHB, SNMC have yet to introduce a RENO policy and furthermore are some are threatening to charge the broker approximately $2000 if the client who the broker helped get a loan within 6 months refinances for any reason!!!?

Homeowners and home buyers are expecting me to help them lock the best rate possible to save them as many pennies as they can in this constricting economy and I will do everything in my power to help them do just that. If I can help... call me anytime 808-393-0707. 

Comments (2)

1SG (Ret.) David Kucic
Hawaii Military Realty, Inc. - Ewa Beach, HI
President and Owner

That is great information Jay.  I can't believe that there are some LO's out there that would tell the client they cannot RENO once they locked but the LO will in fact move the loan to another lender in order to put more money in their pocket!  That is disgusting.

I know my buyer clients are are safe with you and thats why you get my referrals for VA Loans in Hawaii and Conventional Loans in Hawaii.

Jay Oku is fair, honest, ethical and highly recommended by David Kucic.

Dec 29, 2008 12:45 AM
Jay Oku
Academy Mortgage Corporation - Ewa Beach, HI


Thank you Sir!~ Although many of the not so ethical Loan Officers were weeded out of the game last year, but with this recent drop in rates many LO's are taking the aditional Yield Spread Premium to line their wallets; up until this recent refi boom many LO's had to make as much as they could to stay in the game with fewer transactions which is unfortunate for the consumer.

Fortunately I work with you, an honorary 08 "Aloha Aina Award Winner" and a couple of other solid agents so I can make a little on a lot of loans and I don't have to make alot on one or two loans...

Thank you and may God bless you and your family in the new year and for many more years to come David Kucic!

Jan 05, 2009 05:12 PM