Timing is key when locking home loan

How lenders set their prices may surprise you

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Editor’s note: This is the second of a two-part series. Read Part 1.

The first article in this series noted that borrowers shopping for a mortgage are obliged to select a lender before the price is "locked." As a result, borrowers in shopping mode are vulnerable to lowballing — the practice of quoting a price below the market as a way of influencing the shopper’s selection.

Borrowers who have already selected a lender but have not yet been locked are vulnerable to an overcharge at lock, explained to them as being caused by "changes in the market price." And borrowers who have been locked may overpay if the property appraisal comes in higher than the valuation used to price the loan, and the lender conveniently ignores it.

Importance of posted prices

These lock scams all involve a deviation between a lender’s posted price and the price quoted to or charged the borrower. The posted prices are those the lender will accept, and which are delivered to its loan officers, telemarketers and other employees or agents authorized to offer the lender’s products to the public. Scams involve these employees or agents quoting less than the posted prices when they are attempting to corral borrowers and more than the posted prices when they lock.

Borrowers can avoid lock scams by obtaining direct access to posted prices. They then can’t be lowballed by loan officers, and they can’t be fooled about the market price when they lock.

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It isn’t easy, however, because with some notable exceptions, lenders do not want the public to have such access.

When my software firm many years ago developed a system for delivering posted prices to loan officer laptops, our lender clients insisted that critical numbers be obscured. The purpose was to prevent a prospective borrower dealing with a loan officer from seeing the posted prices by peeking at the laptop screen!

The growth of the Internet has made it possible for any lender to make its posted prices available to borrowers, but very few do. In general, lenders view their websites as a way to stimulate potential borrowers to contact a loan rep. For this reason, the prices that borrowers can access on most individual lender sites are incomplete, meaning that they do not take account of all the factors that affect the price of a specific transaction.

Furthermore, in many cases the site won’t provide any prices at all unless the borrowers identify themselves. This guarantees that they will be contacted for a sales spiel.

Channels through which borrowers can access posted prices

A group of lenders I certify as Upfront Mortgage Lenders (UMLs) allow borrowers to access complete prices on their websites without identifying themselves. Borrowers can shop UMLs without fear of lock scams. However, this requires that they access multiple sites, all of which are formatted differently, and they must do it on the same day because prices are reset every day.

Much more convenient are third-party networks on which multiple lenders post complete prices, allowing borrowers to comparison shop at one site. A listing of the major features of 14 multi-lender sites, one of which is mine, will be found at my Features of Multi-Lender Mortgage Sites. These sites are not all created equal, by a long shot.

Make sure the prices you try to lock have not lapsed

A word of warning about using any website, single-lender or multi-lender, to avoid lock scams. Mortgage prices can be locked only during normal business hours when the lock desks of lenders are open. Ordinarily, this is between about 10:30 a.m. and 5:30 p.m. EDT. Within these hours, posted prices are lockable by a borrower who has been cleared to lock.

This means that the price a borrower sees on a site at 9 a.m. EDT is the price that expired at 5:30 p.m. the previous day. The price that borrower can lock is the one that will appear about 10:30 a.m. Similarly, the price a borrower sees in shopping on the weekend is the one that expired at 5:30 p.m. on Friday. That borrower must wait until Monday morning to see a lockable price.

Borrowers using multi-lender sites who have not understood these constraints have sometimes tried to lock prices that had lapsed, and when they were unable to do so, have complained that the lenders on the site were not honoring their posted prices. Because this has happened on my site, I have decided to flag lapsed prices along with an indication of when new lockable prices will be posted. I recommend that other sites do the same.

Check your mortgage price if the appraisal comes in high

Locks that are issued before the property is appraised usually are conditional on a minimum appraised value. If the appraisal comes in below the minimum, the mortgage price will be raised. But if the appraisal comes in significantly higher, the borrower might deserve a price reduction, yet might not get it.

To check this out, the borrower receiving a favorable appraisal should check current pricing on the site to see whether the higher property value would result in a lower mortgage price than the lower value that had been assumed when the mortgage was originally priced. If the answer is "yes," the borrower should petition the lender to reduce the price accordingly.

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

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