Loan Officer Training - 01/16/2025 - Mastering Rate Lock Management for Loan Officers

In today’s competitive mortgage industry, understanding rate lock management is essential for every loan officer aiming to deliver top-notch service and close deals with confidence.

In this episode, we dive deep into the art and science of rate lock management. Learn how to navigate fluctuating markets, communicate effectively with clients about rate options, and avoid costly mistakes that can derail a deal. Whether you're a seasoned professional or just starting out, this episode will equip you with practical strategies to master rate locks, build trust with your clients, and boost your overall success.

Tune in for actionable tips, real-world examples, and expert insights that will help you stay ahead in the ever-changing world of mortgage lending.

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Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!

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Catch all the episodes of the Loan Officer Training Podcast at https://themortgagecalculator.com/Page/Loan-Officer-Training-Series-Podcast

Catch all the episodes of the Loan Officer Training Podcast at https://themortgagecalculator.com/Page/Loan-Officer-Training-Series-Podcast

Loan Officers for Unlimited Free Non-QM Leads & Trainings Join The Mortgage Calculator at https://themortgagecalculator.com/join

The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as thousands of Non-QM mortgage loan program variations using alternative income documentation!

Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!

Our team of licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as acc...

Transcript

Restream recording Jan 16, 2025 • 05:10:08 PM: 0:13

Now, as everyone knows, a rate lock is an agreement between lender that allows the borrower to lock in the interest rate on a mortgage for a specified time period at the prevailing market rate and provides the borrower with protection against a rise in interest rates during the lock period. very important during these very volatile times right now. Now, interest rate risk is the risk that the market interest rate will rise, which will cause a decline in the value of the instrument. Now that's really more for the, um, for secondary. And the pull through rate is the number of our loan applications that are closed and funded by the lender versus the total number of submitted loan applications over a set period of time. So we really want to make sure that we close We now we all know what interest is, but what are the factors that affect interest rates? Well, Federal Reserve, right? Open market operations. We've seen it happening right now. Last couple of days, we're looking at inflation. Now, in the last couple of days, inflation risk went down. Some CPI numbers came out, uh, lower than expected. So the market has, uh, reacted positively and the rates have gone down. So today's a good day to lock, by the way. Um, you know, we've, we've gone over this and other trainings on how do, um, what are the conditions that affect inflation? Interest rates, right? So we all know we got to keep an eye on that 10 year, see where it's going to keep an eye on what the Fed has to say, um, so that we can have an idea and be able to consult our borrowers. So, well, we really, what are the challenges? With rate lock management. This is really what I wanted to get into here. So market and interest rate volatility. That's what we want to control, right? Because what can happen if you do not lock that file in? Let's say you disclose the file at 7 percent and the DTI was 49 percent on a convention alone and the borrower qualifies. Okay. But now, all of a sudden, you did not, um, lock in the file as soon as the disclosures were signed. And as soon as a file was registered onto the portal, which is when you can lock, you cannot lock the file in as soon as the loan application is taken because the file does not exist. On the investors portal. We have to wait till the file is disclosed intake registers the file on the portal, and then you're going to request your rate lock. As soon as you, this is a non delegated files, by the way, if it's a brokered file, you're going to be submitting and disclosing and all that kind of stuff and, um, you, you're going to request the rate lock yourself via the portal of the lender where you're submitting the loan. If it's non delegated. Uh, you request the lock, um, through encompass and our, our live desk will go and process that, uh, rate lock request as soon as the loan exists on the portal of the investor, which is why some of you may get the email. Your lock request has been denied. Because the customer hasn't signed the disclosures yet and intake has not completed the, um, the registration of the loan on the portal. So you got to wait till that file exists in the portal. But once it does, that's your green light that you can lock it in at that moment. You do not have to wait till the appraisal comes back a week or two weeks later. To lock it in because, you know, with the amount of volatility that we're having right now in the market, if you wait one day, it could be too late. Right? So if, um, it's ready now and the customer is happy with the rate right now. Now is the time to lock it as soon as the file is registered. Because again, what are the risks? Well, if the interest rate goes up, let's say that 7 percent rate is now 7. uh, now the DTI goes up, there could be then an issue. Uh, where the borrower may no longer qualify at the higher interest rate and you could have an issue and now another factor to lock in the rate is not the loan does not just have to do with the interest rate. But it has to do with the guidelines. Guidelines tend to change. And if the guidelines, if once you lock in a loan, you also lock in the guidelines for that product. So that if the guidelines should change, what happens every now and then, maybe they'll tell you the, the FICO score requirement now increased from a 660 to a 680. for a particular program and your borrower has a 662 and you didn't lock it in and now they require a 680. Now your borrower no longer qualifies for that program. Maybe you can fix it with a rapid rescore with the borrower paying down some accounts and then you the MLO paying for a rapid rescore or maybe you have enough time to do that. But keep in mind what can happen. Also besides a guideline tightening you could have A program be totally eliminated where the only way that you could, um, safeguard your borrower is to have locked in that loan, which would have locked in the program. So, even if the program is eliminated, you're already locked in. And as long as the lock is active, um, they won't, you know, they'll, they'll allow you to close under the program. So, again. Uh, be be aware of that. Now, another scenario, if the, if the interest rate goes up, is that, let's say you can't do anything with a re score, uh, now all of a sudden, a borrower has to come in with more down payment, maybe because the LTV is lower and the borrower doesn't have the additional money, uh, to cover the additional down payment or the additional closing costs to qualify at the higher rate. And they may not be able to close and result in any of these four scenarios is Barber becomes upset, cancels the loan, vows never to conduct business, no referral loan to the MLO, nor to the company. Uh, but main thing is that their purchase or their refi got damaged by the fact that, um, the rate was not locked when it should have been. Remember, customers don't always know when the rate should be locked. Um, that's up to you to have that discussion with the customer and you shouldn't be having that that discussion with the customer when the loan application is going to be disclosed. You want to explain to the customer. Okay, you're going to send a loan application. We're going to register the file on the investors portal. Do you want to lock it in right now at the rate that we have? Because they're seeing an application come by with a rate, they're probably expecting that's the interest rate they're going to get. They, they may not understand about rate locks or any of that kind of stuff. So it's your job as a licensee to explain to them everything, um, that is involved in the process of the loan application, including, because you know, you've, you've, you've brought it all the way. To locking the file. I mean to disclosing the file. Why ruin it by not also explaining to them about protecting the interest rate that they think they're going to get with a rate lock. And my recommendation is, uh, don't lock it in for 30 days. I would probably lock it in for 45 days. It's usually only going to cost you an extra eighth. of a point. Sometimes it's even the same cost. Don't risk it because if you have to go get an extension to the rate lock, it's going to cost two to three times more to extend it for 15 days than it would have for you to get a 45 day lock instead of a 30 day lock. When you initially lock it, remember things can happen that could delay the file. Plus also in some cases, Depending on where the loan is being submitted, they require the rate lock to be valid through the, um, uploading of the file on the investor portal after everybody signs in the closing. So if it's a mail away, for example, for the seller, and there's going to be a two or three day delay for the title company to get those signed documents back and uploading it to the portal. Of the investor, we need to have that rate lock valid through that extra time period. So there's a lot of, uh, factors here to consider, but the main one is, um, communication with the customer as to, uh, locking in the rate. And, um, my recommendation and this volatile environment that we're in is that you lock it in as soon as you're able to and lock it in for 45 days. It's, it's going to give you peace of mind. Because we have so much volatility, the last thing you want to do is lose a loan because now the interest rate is not what it wants it to be. So again, I guess I got a little bit ahead of myself here in terms of the strategies for effective rate lock management. But like I was stating before, early in the process, before the loan is disclosed, communicate to the borrower. The need to lock the rate and confirm when the borrower decides to lock them. I mentioned there about locking it for 45 days, not 30 and, and please make sure that the credit and income and property type is properly analyzed prior to requesting the rate lock to ensure. That, you know, the loan is, is going to close. I mean, typically, you know, when we disclose a file, it's already been checked by, you know, with you, with, you know, with your mentors and we've analyzed the structure and it's usually good, but just make sure that there aren't any issues, unforeseen issues that could affect the loan. The loan closing, very important. Also manage the borrower expectations throughout the process, right? I explained to them, uh, how everything works, like I mentioned, so that they, you know, cause they're going to assume one thing and unless you explain to them and manage the expectations, then, um, you know, it's, uh, it's going to give you a good result in a headache. Let's just put it that way. Okay. And what are then lastly, the benefits of effective rate lock management? You see there the happy loan officer, right? Well, you're going to minimize the interest rate risk because you're going to lock in the loan and interest rate risk is also the risk of, you know, not having the program available for when they want it. So that's all pretty important. You're going to provide certainty to the borrower and being able to properly plan the finances for the transaction, right? They know that they're what their payment is going to be. They're counting on that 7 percent interest rate. If that's what it is at the last thing they want. Is that the last minute to be told it's going to be seven and a half percent and even if they qualify now their payments higher, it may not fit into their budget, even though they qualify, right? Um, if it's an investor, especially we're going to help their profitability by enhancing the financial stability. And for the MLO, a lot of benefits here, right? You're going to have higher earnings due to less deals falling apart due to rate lot issues. You're going to have higher earnings due to increased referrals from satisfied customers. You're going to be spending more time on production and closing and less time dealing with borrower issues and complaints. And you're going to have a more positive business outlook from increased satisfaction of being a successful loan consultant. So the takeaway from this presentation, the most important one I would state is that the most, the, the best time to lock in the file is when the customer. Wants to lock it in and when they expect it to be or when they expect it to be locked in. That's what I'm saying. Don't assume anything communicate with the customer the need to to, you know, what, how it works, you know, what's the procedures for a rate lock. Ask them if they want to lock it in. As soon as the loan is disclosed, they're probably going to say yes. Explain to them that you're going to lock it in for 45 days. It doesn't matter that you quoted them a 30 day rate. Lock it in for 45 days and explain to them the benefit of the extra 15 days in the whole process. And just, like I said, make sure that you're properly managing the expectations. Do not wait. Don't think you have to wait for the rate lock request for the appraisal to come back. You don't. That file can be locked in if it's non Dell, as soon as it's disclosed and it's registered onto the intake is completed. If it's non Dell, and if it's brokered, as soon as you go on to the lenders portal, and you upload it there, then you can lock it in. That's it works the same both ways. The file has to exist. In a lender or investor portal to be able to lock so don't wait until it's too late to lock in the file. Um, and then all of a sudden have an interest rate half a percent higher or even worse than what was originally estimated. So, are there any questions regarding rate logs? When anyone should think we should rate log? What do we think about the interest rates? Where do we think they're going to go? Any, any kind of questions like that. Uh, would be, uh, you know, we can go ahead and answer that because this should be a hot topic for everybody, right? Uh, rate locks are, um, interest rates again are very, very, very volatile and you should really be locking in those rates, uh, as soon as you can, right? On the non DELT. Okay, so we got Jackie with a question. All right, so she states here, you mentioned about a rate increase. What if, to the benefit of the client, the rate goes down? How is that handled within the rate lock period? Okay, that's a good question. So I'm assuming you mean if the interest rate is already locked, is there any option if the rates go down to lower the rate? To change the rate. Well, that there there may be there is in some cases that's called a float down, right? The float down is where they basically let you bring the rate down on a file that's already locked. Um, so what we're talking about here is that the float down policy is not necessarily available in every, um, investor or every lender. It varies from investor to investor and from lender to lender by investor. I'm talking about the companies we sell a loan to if it's not dealt and by lender, we're talking about the on a brokered file, the lender you're submitting. The file to some have a float down policy that states if the, if the cost of the rate goes down by one point, you can float it down and then they're going to charge like a half a point, but you get a lower rate. So, the, you know, the benefit then would be a half a point benefit to the customer and then that half a point gets applied to the rate and the rates going to go down. That's called the float down, right? But that's not possible in every, uh, scenario, right? So do be aware when you do have a file submitted. If rates go down and the files are already, already locked, uh, let us know and, you know, we can reach out to the investor and find out what's the float down policy. But it's usually going to be something like that. The rate has to improve enough so that the cost of the rate Gets better. So let's say the cost of the rate decreases by a point. For example, I know one in particular where the cost has to decrease by up by a point on the same rate, and then they'll charge a half a point. So you get. They'll give you the new better pricing of a half a point and then that can be applied to the rate and the rate can be brought down whatever that half a point gets you. Or more, if it's more than a point drop in the cost, you know, they're only going to charge that half a point and the difference in the cost goes to the borrower to apply to the rate to try to get a lower interest rate. And so remember that's a float down. Very good question, Jackie. And then, um, Amy wants to know who pays for the rate lock and how. Okay. Well, the, the rate lock does not, you know, we don't, we don't charge an upfront rate lock fee. You know, some lenders, some investors charge the borrower a rate lock fee. We don't do that. Uh, the rate is just locked. You know, we request a lock, we lock it in, and that's basically it. Now, what happens is, if the rate expires, or is going to expire, We extend it. There is a rate lock extension fee that gets added to the cost of the rate. That's not a fee the customer pays during the process that just gets added to the cost on the rate. And then we redisclose the extra cost for the rate lock, for the rate lock extension. So, couple good questions there. Any other questions on interest rates? Where we think they're going to go? What, anything on the process? I mean, right now, again, there's a lot of volatility in the market. It's hard to tell. I mean, everything is basically in the short term. Right. We're, we're dealing with short term situations here right now. Always looking forward to the next report from the Fed, the next inflation report, the CPI, PPI, and all these other reports that, that go out. So, you know, all you can do is monitor the, the activity and the, and the economy to be able to consult your borrowers. But the key, I would state is that once you have that application and it's going to get disclosed, that's the moment to discuss with the customer. And if that's the rate that you're disclosing and that's the one that they want, lock it in as soon as you can. Do not wait. Okay, we have another question here. Do rate locks get processed with senior management? Well, when you request a rate lock through, uh, up through Encompass, Right. Our, which is our, our loan origination, uh, soft system, um, that request goes to our lock desk. Then our lock desk then goes to the portal where the loan is registered and request the rate lock from the investor. And then once the rate lock is processed by the investor, you get a confirmation email that the rate lock, uh, has been processed and completed and that a change of circumstance needs to go out. To the borrower for the, uh, rate lock for the confirmation, usually, you know, it's the same cost, but sometimes it's a little bit of a higher cost. So yeah, we definitely need to always redisclose rate locks, uh, because remember any change in circumstance. Has to be redisclosed within three days. So if that rate lock is not redisclosed within three days, your file will be out of compliance and it risks not being able to close, especially if the costs went up. It definitely risks not being able to close for not having re disclosed the rate lock. Good questions today. All right, so I'll give it a moment to see if we have any more questions. A very important topic today, rate lock management. And again, I can't stress any more than the state, the best time to lock the rate. Is as soon as the file is disclosed and intake is completed so you can make sure that the customer gets the rate that they saw on that application. Right? Yeah. I mean, you sent him a quote. They're like, yeah, that's the 1 I want. And that's the 1 that they're going to see on the on the loan estimate as their son as your, I mean, on the initial loan estimate that they're signing. The last thing they want is to get a loan estimate when it gets locked in at a higher interest rate, especially if you haven't discussed it with them. And especially if they were not the ones that tell you to hold off, don't lock it in yet. I had a customer told me a couple of weeks ago, no, don't lock it in yet. I'm like, are you sure you don't want to lock it in? And by the way, this was all via email. And finally, uh, the customer was like, no, don't lock it in. I think it's going to get better and instead it's gotten worse. So I'll be reaching out to him today at some point to see what they want to do because we had a little dip the last couple of days. So this may be a good moment to take advantage of this. All right. Good questions today. I'll give it another minute to see if anyone has any additional questions on rate locks or rate lock management or interest rates in general. But I do appreciate all of you, uh, being in today's, uh, training. Very, very important training. We don't want to lose a loan after working so hard to get the loan because we did not lock the loan. All right, everyone. I think that's probably it for the questions. Uh, do appreciate you all being here and I will see you next Thursday. Have a good day.