Confessions of a Contract Loan Processor: "To Lock or Not to Lock, that is the Question"
Over the past several months, the loans submitted to my company for processing that aren’t locked has increased.
This is due in part to several factors. Rates have been at record lows because of the Federal Reserve purchasing mortgage backed securities (mbs) and treasury bonds. Customers have been hesitant to lock into a rate because rates have been stable to declining….the thought process has been “when will the rates bottom out?”. Loan officers are fearful of locking into a rate and not knowing when the file will actually be underwritten….turntimes could range from 30-60 days and sometimes even longer because of the backlog with lenders. If they lock into the rate, the chance of having to extend the lock are more than likely causing extension fees. All of these reasons have merit and it is easy to understand this viewpoint.
However, last Wednesday 5/27, rates increased more in a single day than they have in years (nearly .75% to the rate). Check out this article that describes the uptick in rates: http://money.cnn.com/2009/05/29/real_estate/Mortgage_rates_going_up/index.htm?postversion=2009052916
Now, those who were floating loans are praying for a rebound. With rates at their elevated level, the ones in process may have a difficult road to closing.
BELIEVE IT OR NOT, THIS IS AN OPPORTUNITY TO SELL MORE LOANS!! Yes, it’s true! And here are a few of the reasons why:
1. CUSTOMERS NEED TO ACT NOW and LOCK WITH YOU! Wednesday’s events illustrate that we may have seen the bottom. Rates in the upper 4’s may not return. With where rates are now, many borrowers are still able to be helped. Encourage those sitting on the fence to lock into the still historic savings opportunity.
2. ASK FOR REFERRALS: As an opportunity with your customers that DID lock in with you and have closed a loan with you in the past several months, send them a letter and thank them for moving forward with you. Explain that it would be a shame for friends and family not to take advantage of this opportunity for the lowest rates they will probably see for years to come.
3. NEGOTIATE BETTER TURNTIMES: With your lenders for your locked loans: In the aftermath of Wednesday’s activity, I spoke with one of my lender account executives and asked her view on the situation. She told me that she talked to her manager and was able to prioritize the locked loans in her pipeline above other loans that were floating. She said that their company has “caught on” and realized that a lot of floated loans won’t close if rates go up like they did on Wednesday May 27th. In order to protect their business unit, she would need to start prioritizing files that are locked. After all, lenders are just like loan officers, processors and title companies-if the file doesn’t close, they don’t get paid either!
So to lock or not lock that is the question. I hope I was able to shed some light on some current reasons for locking and closing!