RICHMOND, Va. – The Virginia State Corporation Commission's Bureau of Financial Institutions has strongly advised consumers to "closely scrutinize" any lock-in agreements when they take out a mortgage to purchase a home or to refinance an existing mortgage to lower their monthly payments. This after the state regulator received numerous telephone calls and complaints from consumers alleging locks on promised interest rates were in fact not locked but had been "picked." According to an SCC release, the recurring theme of the telephone calls and complaints the BFI has received is that the lender or broker is not honoring the lock-in, and the consumer's interest rate or points are going to be higher at loan closing than they were told at loan application or at the time the consumer thought they "locked in." The BFI said consumers should be aware of certain pitfalls related to lock-ins – a lender's promise that the consumer will receive a specified interest rate, points, or other cost-related mortgage feature if their loan closes within a certain period of time referred to as `the lock-in period.' Lock-in periods average 30-45 days, but they may be shorter or longer. Consumers sometimes pay a lock-in fee to obtain a lock-in agreement. Quickly changing interest rates have made the mortgage market an "extremely volatile environment," says BFI, and "the situation is worsened when a large number of consumers seek financing at the same time." This situation can make it difficult for lenders to perform within the set period of the lock, and under most lock-in agreements the rate must then be renegotiated at the current market rate. To help Virginians avoid finding themselves locked out of lock-in's, the Bureau of Financial Institutions has made several recommendations: * Always obtain a written lock-in agreement: the most common pitfall is that at application, the mortgage broker or lender issues a verbal lock-in. Although Virginia law doesn't require a written lock-in agreement be issued, the BFI by regulation defines a lock-in agreement as a written agreement between a mortgage lender and a mortgage loan applicant. The agreement establishes and sets an interest rate and points to be charged in connection with a mortgage loan that's closed within the time period specified. State regulations also require that if a lock-in agreement is issued in connection with a Virginia mortgage loan, it must include certain information. The objective, says BFI, is to obtain an enforceable contract. Although a verbal agreement is legal, it's difficult to prove when there's a dispute. Only a lender can lock in a rate. In some cases, says the regulator, mortgage brokers tell consumers verbally or in writing that the rate is locked in, but they fail to lock in the rate with the lender. `* Be sure the lock-in period is adequate for current market conditions: according to BFI, the second most common pitfall is that the lock-in period expire before the loan closes. Any lock-in period should be long enough to allow for settlement, as well as the handling of any other factors that could arise that would delay settlement. Consumers should verify with the lender the average time it is currently taking to process and close a mortgage loan and keep in mind that in a time of high demand for mortgage loans, processing times increase and a longer lock-in period could be necessary. * Submit all information requested as expeditiously as possible: if a lapse in the lock-in period resulted from the lender or someone else involved in the loan process such as the mortgage broker or appraiser and was not delayed by the borrower (such as not furnishing documentation to the lender in a timely manner), then it's best for the consumer to try to reach a mutually satisfactory agreement with the lender, says BFI. "One reason why some lenders are unable to offer the lock-in terms after the lock-in period expires is that they can no longer profitably sell the loan to investors based on such terms. Lenders who keep their own loans have more flexibility with rates after the lock-in expires," BFI states. * Carefully read the lock-in agreement before signing: Consumers may need to consult an attorney because of contractual rights under the lock-in agreement. They can also contact the appropriate state or federal regulatory agency that licenses the broker or lender. "If there is a written lock-in agreement and a lock-in fee was paid, the consumer may be entitled to a full or partial refund of the fee. This will depend in large part on the language of the agreement. Always read the fine print in any agreement," write BFI. -

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