Loan Modification

Don?t believe everything you read?.

By Gina Pogol

Just because it’s in the New York Times doesn’t mean it’s necessarily correct.  For example, a current article about locking in your mortgage rate (FHA or otherwise) is riddled with inaccuracies.

Loans last year took an average of 5 days longer to close, which made the mortgage rate lock more problematic for some borrowers whose locks expired before their mortgages could close. However, the article contained some rather misleading statements that could further complicate things for those who rely on it. I’ll address these points one by one.

Misstatement #1 regarding extending locks when they expire: “Although most mortgage brokers do not charge more money for that service, borrowers who deal directly with lenders could end up paying at least several hundred dollars in extension fees. Most lenders charge from 0.10 to 0.25 of a percentage point of the loan amount for a 15-week extension; for a $400,000 loan, that can amount to $400 to $1,000.”

This is false. Mortgage brokers lock loans with direct lenders the same way you would lock a mortgage with a direct lender if you cut out the middle man. If a lock blows, the direct lender charges a relock fee regardless of who requests it. If rates have not increased over what they were when you initially locked your mortgage, you can relock with either a broker or direct lender at no charge. In addition, many lenders will extend a lock for 48 hours at no charge regardless of what market rates are doing. Finally, if mortgage rates have increased since you locked your loan, and an extra 48 hours won’t be enough, you will have to pay more — either to relock or extend your lock, or float your loan and hope mortgage rates come down before you close. Typically, a 15-day extension costs about  0.25 percent of your loan amount, or $250 per $100,000 financed.

Misstatement #2, which is a biggie: “If your credit score plummets after you?ve signed a rate lock, lenders in some cases might rescind the lock.”

This is monumentally false: If your credit score plummets before closing you might lose your loan approval, or if you have a conforming loan there might be addition risk-based surcharges, but your lock is never rescinded.

Misstatement #3, which is the biggest ever: “Some rate locks have buried in their fine print a caveat that a rate can in fact rise a quarter of a percentage point or so and still be considered applicable to the borrower.”

It would be flat-out illegal for a lender to lock you at 6 percent and close you at 6.25 percent. That’s what Truth-in-lending laws are designed to keep from happening.

Bottom line? You should always close at the rate you lock, especially if you lock in an FHA mortgage — there are no risk-based adjustments and so there should be no changes in your rate.

Full post as published by FHA Mortgage Guide on January 10, 2011 (boomark / email).