Float or Lock: Part 2

As promised, I'll write a little about what happens when you lock your loan...

There's a little more involved with locking than just faxing a piece of paper with a bunch of numbers and loan details. Before I offer you (or any client) a lock I have to do my research. There's a lot more to finding the right loan than just checking the interest rates. Not all banks are created equal when it comes to service. If they aren't going to be able to underwrite the loan in a reasonable amount of time, then that definitely affects the lock period that is required. If you go beyond your lock period, it typically costs money to extend- therefore, choosing the right bank for each client and their unique needs is essential.

There are also other considerations with locks. For instance, there is the concept of "pull-through." This term relates to the ratio of loans locked with a particular lender or investor versus the number of loans closed. This is a very important concept because it has a direct impact on the interest rates that I am able to offer to my clients. It is important to lenders that their locks perform because when a loan is locked a process begins. When a lock is registered with a particular lender, their secondary marketing department begins the packaging process and bundles the loan into blocks with other mortgages to sell to investors. It the locks are blown, the block of mortgages lose value and that chips into the bank's yield. With little exception, your loan is packaged and awaiting delivery soon after registration. Who's buying these loans anyways, you ask? Typically it's either going to be a bigger bank with more money to lend or Fannie/Freddie themselves.

At this point you may be seeing the problem. If it is a falling interest rate environment, this is where my job can become a lot more stressful. It is no easy task figuring out when the right time for my clients to lock is, or answering the calls if the rates fall lower after they do lock. It's important for me to always make sure that my clients are getting a good interest rate and don't feel like they can do better anywhere else.

Lenders aren't unreasonable though, they understand that if interest rates are falling, lenders are going to want to move their locks to different banks to capitalize on lower rates. As a result, many offer "float-down's" or other incentives to keep the loans right where they are. It nearly always costs some money, around .125-.5% (of the loan amount) depending on the lender, but it's nearly always worth it for me to pay to preserve the relationship with the lender and to get my client a great rate.

If I have a large number of locked loans fall through or don't properly manage my pipeline then I risk not having access to competitive rates and losing business (not good). Pipeline management and market analysis is key. With the volitility that we are seeing in the market these days it's more important than ever to be a full-time mortgage professional and pay attention to what's happening in the market.