A lender’s end to overages

Will new rules spur other banks to follow suit?

Bank of America recently delivered the following message to its loan officers: "Policy Change: Effective with initial locks on or after Jan. 21, 2010, overages will not be allowed on either purchase or refinance transactions." Some years ago, I had occasion to compare the marketing of home mortgages by lenders in the U.S. with the marketing of carpets in Middle Eastern bazaars. The comparison favored the carpet merchants, who didn't pretend their prices were fixed. Virtually all carpet buyers know that in the bazaar, bargaining is the rule. While less-competent bargainers may pay a little more, they are paying for their incompetence, not their innocence of the rules. In contrast, a large proportion of mortgage borrowers did not understand that they were in a mortgage bazaar -- they paid for their innocence. The price of innocence is called an "overage." It is the difference between the price a lender posts with its loan officers -- which is the price th...