I just got word from my mortgage broker, whom I've been using for a decade now, that she believes that an RE Broker should never advise a client on when to rate lock (and this would include when not to lock). I was wondering what other agents are doing and why.

For me - heck yes I advise clients on when not to lock. My general rule of thumb on resale residential homes is we wait until:
1. the due diligence period has ended
2. home inspection report is in, discussed, negotiated
3. if FHA buyer, we wait until after FHA appraiser report comes in

Typically, the inspection and FHA appraisal are done within the due diligence period. Personally, I don't know why anyone in their right mind would do a 30 day rate lock the moment there's a contract acceptance (especially if there's no record breaking low rate at the moment) when there are so many unknowns. And why on earth would mortgage brokers have a big problem with my rule of thumb?

Do you advise your clients on rate locking? What's your rule of thumb?

I don't think it's wise of her to interfere in a Broker/Client relationship. You have a Fiduciary Responsibility to look out for their best interests.

Sounds like they were counting on the receipt of that Rate Lock Fee. Testy . . . . Testy !

I'm not in the mortgage business, I sell Real Estate. I advise on Real Estate. I recommend they talk to their banker about such things. Other things I recommend they talk to their CPA, Lawyer, and in some cases their clergy for guidance. I talk about Real Estate.

Used to you could get 1 free float down. This way if rates went up you had the lock but if rates went down you could take advantage and get the lower rate.

I will answer some questions but leave most of the financing up to the lender/mortgage broker.

Of course the key is knowing they can handle the business and are not a goofball.

[quote=Integrity1]I just got word from my mortgage broker, whom I've been using for a decade now, that she believes that an RE Broker should never advise a client on when to rate lock (and this would include when not to lock). I was wondering what other agents are doing and why.

For me - heck yes I advise clients on when not to lock. My general rule of thumb on resale residential homes is we wait until:
1. the due diligence period has ended
2. home inspection report is in, discussed, negotiated
3. if FHA buyer, we wait until after FHA appraiser report comes in

Typically, the inspection and FHA appraisal are done within the due diligence period. Personally, I don't know why anyone in their right mind would do a 30 day rate lock the moment there's a contract acceptance (especially if there's no record breaking low rate at the moment) when there are so many unknowns. And why on earth would mortgage brokers have a big problem with my rule of thumb?

Do you advise your clients on rate locking? What's your rule of thumb?
[/quote]

Do you know where the MBS market is trading? Do you know what the pricing is on the primary MBS coupon? Do you know what economic data is being released during the agreed purchase contract time? If you cannot answer yes to all of those, you should never, ever be advising clients on interest rates.

Since I don't have a crystal ball, I send them to the link below, or their lender.

http://www.bankrate.com/finance/mortgages/mortgage-rate-trend-index8-130209.aspx

My lenders don't advise my clients on how to write an offer and I don't advise them on how to manage the loan. But then I don't typically do 1st time buyers or FHA loans.

I don't advise on locking loans, but (only) if asked I say this: "Rates typically go up faster than they come down. So, if you're happy enough with today's rate, you might want to consider locking it in. But talk to your lender and see what he says." Pass that buck!

So...for all of you except for Vermont...if you are under BBA, and your buyer turns in an offer on a resale home, the moment it's accepted, you say nothing to your FHA buyer who does a 30 day lock the moment there is a contract acceptance (with the conditions listed in my opening post)?

Even worse, if you have an FHA buyer, who has just gotten back an acceptance on a new construction home that has just been dry walled, and he wants to do a 30 day lock, you never say to your buyer, "Ummmm...since I've never seen a home finish that quickly, you may want to wait on the lock?"

You guys say nothing? And you say nothing because you don't know where the MBS trading market is, or because you don't know the price of tea in China?

This is not about the details of the mortgage, this is about you knowing the details of the real estate transaction. If you know with 99% certainty that this deal won't close within 30 days based on your real estate knowledge, you don't tell them to simply wait on the lock? Seriously?

1. I don't do FHA

2. The lender should know when the closing date is scheduled for. If they lose the rate lock it is on the lender to pay for the rate lock extension, which they do.

Sometimes it makes sense to lock in at today's rates and pay the extension fee rather then pay a higher interest rate.

1. You don't have to do FHA to understand FHA as it relates to my opening post. Typically, FHA takes longer than conventional to close. That's the only reason why I mentioned FHA (and that there is an additional inspection). Most lenders will balk at closing dates set under when they think they could close it. Problem is, the only details the lenders have is THE CLOSING DATE ITSELF. You, the agent/broker, have MORE INFORMATION. You know that the home inspector that the buyer chose and insisted on couldn't make an appointment until the end of the due diligence period, that ended up within 2 weeks of the closing date. YOU KNOW the FHA appraiser must go out and likely have another list of things to take care of for the seller, which is probably going to take MORE TIME. You know that your buyer is pickier than Miss America right after winning a beauty pageant. You know that sometimes there are objections by sellers who don't want to do what they consider "cosmetic" repairs --> this takes more time. You know this deal could fall through at any moment during the due diligence period, yet you say nothing when your buyer does a 30 day lock the moment he has a contract acceptance (with the conditions listed in my opening post)?

2. See most of my #1. And no, if the buyer loses the rate lock it is not on the lender --> it's faulted by whomever dropped the ball. I've seen many variations of ball dropping. I've seen a builder who promised a quick closing date, but then choked when he couldn't get the County to get him 15 permits on the same day for 15 new construction homes that went U/C on the same day. In that case, the builder paid the rate extension AND the interim interest to the mortgage investors, from the closing date in the initial contract, to the new closing date due to the delay beyond the buyer's control. But if the lender drops the ball (didn't get loan back from underwriting, or assistant loan officer was out sick for a week), yes, they take care of it.

This isn't about low rate / high rate. This is about you being almost certain, with your real estate information, that the closing most likely won't happen within the requested closing date. And you're saying that if you knew it likely would not close, you'd say nothing to your buyer that it's probably not going to close within the the lock period that he chose.

The point here, just as stated in the very first post, is that there is a time to NOT LOCK. That time is during the due diligence, prior to home inspection, and prior to appraisal. Doing it during those periods is simply jumping the gun.

"The point here, just as stated in the very first post, is that there is a time to NOT LOCK. That time is during the due diligence, prior to home inspection, and prior to appraisal. Doing it during those periods is simply jumping the gun."

I disagree. With the builders assurances of completing on time, and everything moving right along, prior to appraisal and inspections, I don't see a problem for the buyer to lock. Builders are held accountable if they don't close on time, and the builders lender will not be a happy lender if his builder (who normally is owned by the builder) does not close on time.
I've had builders offer to put up clients in hotels if they did not close on time.
With resales as with new construction, you give your buyer the best advice possible about the process, but the decision to do anything is still the buyers, regardless of your personal opinion.

Integrity & Pikes Peak,

It is very apparent you know very little about interest rates. If a buyer took your advice in May through July they should be seeking legal counsel. The MBS market increased over 100bps. (Google Black Wed. in the MBS Market) That means an increase of .75-1.25 in rates. If you had your buyer waiting on the "due diligence period" to lock, you just cost your buyer thousands of dollars in interest.

Might I suggest a class on simple economics? It is very important to understand the MBS market if you are going to advise a client on rate locks. If you equate ones having to know the MBS market to the "Price of tea in China" then I shall borrow a phrase my favorite college professor "You cannot argue with stupid".


If the purchase contract says 30 days, might I suggest you perform your due diligence in ensuring that closing date can be met before you permit your buyer to agree to the terms. If you anticipate needed extensions, negotiate upfront who shall pay for any rate lock extensions.

Here are some terms you might need to learn:
Rate Lock Extension
Re-Lock Negotiation
Rate Lock Float Down

If you were my agent and advised me not to lock and rates increased as they did from May through July I would demand you forfeit your commission to cover the interest you have now cost me on my loan.

1. I have never had a client who was not concerned about getting the lowest rate.

2. I have no idea how much tea costs in China. Is there a CE course for that?

Thats right. I don't advise them one way or the other, I leave that to another professional.