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First time poster, long time reader. I'm hoping I can get some advice here. I am going through the first time home buyer process and am currently using an USDA loan. My mortgage broker told me 3 weeks ago I was locked in at 5%. He originally wanted to lock me in at 5.25%, but I had a better offer from another lender and he was willing to match it. I get a call today letting me know that my rate went up from 5 to 5.15% because of the USDA guidelines changing. Can the lender change the rates after I am locked in? I think he is trying to cover his mark-up because he didn't make as much as he wanted to, but I could be mistaken. I am trying to get some advice so I can figure out how I wanted to approach him. I signed a contract in December 12th and I will be closing next Friday. Thanks in advance.
First time poster, long time reader. I'm hoping I can get some advice here. I am going through the first time home buyer process and am currently using an USDA loan. My mortgage broker told me 3 weeks ago I was locked in at 5%. He originally wanted to lock me in at 5.25%, but I had a better offer from another lender and he was willing to match it. I get a call today letting me know that my rate went up from 5 to 5.15% because of the USDA guidelines changing. Can the lender change the rates after I am locked in? I think he is trying to cover his mark-up because he didn't make as much as he wanted to, but I could be mistaken. I am trying to get some advice so I can figure out how I wanted to approach him. I signed a contract in December 12th and I will be closing next Friday. Thanks in advance.
It happened to me once. The lock is not unconditional, but conditional on the internet credit analysis.
This said, I am not at all commenting on what they did was kosher.
If your initial application was spot on accurate and the house appraisal was as expected, then next up to consider would be things like the loan programs. I would want to get the broker and bank to show EXACTLY how numbers resulted in this happening. Also, confirm the change with the USDA.
Note, it is up to you to accept any slimy behavior you may think occurred. Once you sign, the only recourse I can see is to attack the broker's reputation and report him to the USDA and his professional board.
I would do the following
1) Contact the USDA about the nature of your loan program and credit analysis
2) From your broker, get the numbers and paperwork and have him show you exactly (step by step) how the USDA change affected the loan
3) If he cannot and gives you salesmanship and mumbo-jumbo, give him a chance to return your rate to the lock with a frank revelation that you are not satisfied with how this has worked out and that you feel that you are due that rate.
4) At this point, you have a choice (a) walk away and go with an alternative lender or (b) go with the loan
5) If you go with the loan you have two choices (a) move on or (b) take action--which I believe is to explain in detail what happened to the public and his firm & association. It make make no difference, but it may give you the venting you might feel you need.
Be sure to consider the path of your actions. You can win the battle but lose the war. If you want this house now, then get the best loan you can get now. If this is it, then do steps 1-3, 4b, 5b.
We had one loan get raised 25bp and the ARM change from 7:1 to 5:1. We trusted our contact and felt she had no recourse. We feel that she was likely pressured by her boss. We financed 18 mos later to a 30yrFRM with a far more reputable firm (original lender no longer exists) with a rate 150 bp lower.
thanks for the reply. i provided my mortgage broker with everything...my credit was good, my debt to income was good, everything was good. i was just surprised this happened - he told me it happens all the time. i am going to follow you advice and contact the usda department and then ask him to show me the proof from the lender that the rate was changed because of this. any other advice would be appreciated before i email him back.
thanks for the reply. i provided my mortgage broker with everything...my credit was good, my debt to income was good, everything was good. i was just surprised this happened - he told me it happens all the time. i am going to follow you advice and contact the usda department and then ask him to show me the proof from the lender that the rate was changed because of this. any other advice would be appreciated before i email him back.
Note: it is not an issue of being "good" nor not, but rather the how numbers fit into their credit formulae. If their story is legit, then either the numbers changed or the quantitative criteria changed.
In our case, our numbers were good, too. But the market had changed and their terms for preferential rates.
His answers should not be in fuzzy terms. Rather it should that your score went from X at lock to Y at close or that the threshold for the 5% rate changed from X to Y.
Note my previous post. Resist the temptation to get in his face. If you do, then you may see the deal fold. Be sure to stay focused on what you want out of this RE deal.
Best,
S.
P.S. Do not expect full transparency of the credit model. Instead, the conversation should be a technical one--with someone. If you do not get such a conversation but instead get hand waving and circumvention, then it would be hard not to consider 15bp increase as a MB markup.
makes sense - i'm not going to walk away from the deal over .125% or get in his face. he has been a help to me so far and i have been asking him questions to try to figure this out. i guess i always assumed when you were "locked in" to a rate that it couldn't change. all the paper work went through last week and it was after that he called me and said you are definitely locked in at 5% interest rate i'll see you at closing next week. i then get the call today stating that the usda changed their guidelines and you need a 660 credit score for prime rates. he said the lender changed their stipulations due to this and because my middle score was 658 that i would have to pay a .125% increase. i was completely unaware the lender could change the terms after they promised to lock me in at a certain rate. i guess my biggest question was if my broker didn't actually lock me in at the 5% rate and i'm paying for it now since he originally said the rate would be 5.25%.
thanks for your responses by the way - you've been a tremendous help.
makes sense - i'm not going to walk away from the deal over .125% or get in his face. he has been a help to me so far and i have been asking him questions to try to figure this out. i guess i always assumed when you were "locked in" to a rate that it couldn't change. all the paper work went through last week and it was after that he called me and said you are definitely locked in at 5% interest rate i'll see you at closing next week. i then get the call today stating that the usda changed their guidelines and you need a 660 credit score for prime rates. he said the lender changed their stipulations due to this and because my middle score was 658 that i would have to pay a .125% increase. i was completely unaware the lender could change the terms after they promised to lock me in at a certain rate. i guess my biggest question was if my broker didn't actually lock me in at the 5% rate and i'm paying for it now since he originally said the rate would be 5.25%.
thanks for your responses by the way - you've been a tremendous help.
I have to agree with Victor.
Lenders have credit score ranges and corresponding "hits" or adjustments to the yield spread premium. I looked at one lenders rate sheet and for credit scores from 640-659 there is a .250% hit to the yield spread.
Looking at today's rate 5.125% would pay the broker 1.75% to 1.50% of the loan amount before the hit of the .250% depending on how long the rate lock is. So in this case the broker would have made 1.5% to 1.25% for the rate of 5.125%.
If the broker locked the loan and the lender changed their credit score tiers or ranges the lender will honor the locks that are already in place.
I agree with Victor and National MTG Banker. If you were really locked in, then they would have to honor that lock, regardless of any tier changes after the fact. An interesting point is that had you applied for the loan after Jan 1 this year, once you had locked in, the broker would have had to immediately send you an updated Good Faith Estimate showing the rate and how long it's good for. Prior to Jan 1 2010, there was no formal, uniform way to show the borrower their locked in rate.
To give you'll an update. I sent the OP the Memo proving his loan officer was lying to him. He confronted the LO with the info and the LO admitted he wasnt being honest about increasing the rate.
Here is part of the email from the OP "I confronted my loan officer today and he finally broke down and admitted to lying to me (all thanks to the info you provided me with). He has offered to make everything right and without your help I would never have the proof or know how to know I was being tricked. The loan officer was trying to be so competitive because I was shopping around that he promised me something he never could deliver."
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