Lender not necessarily at fault when borrower misses low interest rate
Q: We started working with a loan officer at a bank because he was recommended by our real estate agent and also participates in a program with my employer to help get employees lower interest rates and low closing costs.
We have already told our real estate agent what happened, so he won't recommend the guy again, and I plan to complain to my employer. But is there anything else we can do? I mean, he has cost us several tens of thousands of dollars over the life of our mortgage.
A: Every time interest rates rise -- and it's been a while since we have seen rates rise substantially -- we get the same complaints about lenders failing to lock in rates or borrowers that misunderstand the process and think they have locked in an interest rate, when they haven't.
Obtaining a mortgage to buy a home and refinancing an existing home loan is not as simple as going to a store and buying a big screen TV. When you go to a store and see a TV with a price tag, you know that you can rely on that price and get that price at the checkout line.
When you shop for a home, you don't know what price you'll pay for it. If the home has been on the market for quite some time, you might think that you can get the home for a bit less than the price on the listing sheet. But if you make an offer for the home and get into a bidding war with other buyers, you might end up paying quite a bit more than you had originally anticipated.
In a way, the same is true with a mortgage. Interest rates change daily and, at times, hourly. You don't get the interest rate unless you officially "lock in" that rate. Here's where it gets complicated. You can't simply walk into a mortgage broker's office and ask to lock in the rate for a mortgage. You might have to apply for the loan, pay certain fees, receive documentation from the lender and get a document that secures that rate for you.
We can't know what happened in the two weeks that your loan officer had your loan application. You made an assumption that your interest rate was locked. What gave you that idea? Every lender must give a borrower certain documentation following the loan application. If you go over that documentation, you should see if the interest rate on your loan was floating or locked. If you didn't review and read the documentation, you should have.
In the past 10 years, borrowers like you never complained as interest rates drifted lower as you generally received the benefit of those better rates. But when rates go up, borrowers yell and scream. You're still getting an interest rate that is historically low. The first loan we obtained was 11.75 percent (you read that correctly).
If you have followed news reports, the stock market seems quite volatile. A bit of that volatility seems tied to what interest rates are doing. While we believe interest rates will continue to be low, that definition of low may have a one- or two-point range.
Ten years ago, the interest rate you're getting would have been considered phenomenal. However, considering that you might have gotten a rate about a point better in the last several months, you perhaps feel you've missed the "low interest rate" boat.
Understand this: You still have a low rate. You might still get a lower rate, especially as interest rates fluctuate. We also know that people in the past have obtained mortgage loans, only to refinance them shortly after closing on their homes when rates dropped. While we don't recommend that you try to time the market, we don't have enough information to know what your mortgage lender did or didn't do or should have done for you.
If the mortgage person you were dealing with failed in his job to work on your file as he or she should have, you should have a conversation with his or her manager to discuss the situation. But if your failure to lock the interest rate wasn't tied to his activities but, rather, to your misunderstanding of the process, you share some of the blame. Just as you researched where to buy your home, you should research the loan process to have an understanding of what you need to do and what your loan officer needs to do.
If your loan officer had locked you in and interest rates had dropped, you might have been stuck with that higher rate and would have been upset. We've heard that complaint quite often when borrowers lock in a rate, and then several days later interest rates drop and they want to break their agreement with the lender to get the lower interest rate.
Unless your loan officer lied to you, gave you false and misleading information, neglected his duties on your file, failed to lock in your rate when you followed the proper directions to lock in your rate, you are probably out of luck. If your loan officer did lie or fail to lock in your rate when he should have, you probably have a good case to have the lender honor that rate lock request. You'd have to deal with a manager or other person at that institution to get them to honor the rate lock.
If the bank or other institution fails to work with you in an honorable way to fix a problem caused by their loan officer, you might have to file a complaint with the government agency that regulates mortgage lenders and mortgage brokers in your state.
(Ilyce R. Glink is the author of many books on real estate and host of "Real Estate Minute" on her YouTube.com/expertrealestatetips channel. Samuel J. Tamkin is a Chicago-based real estate attorney. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST. Contact Ilyce through her Web site, http://www.thinkglink.com.)