Is locking with a mortgage broker the same as locking with a lender

Not quite. In most cases, the broker will follow your instructions, locking with the lender when you tell him to. Some brokers, however, will charge borrowers the lock price but won't lock with the lender. If the market doesn't change, they pocket the price difference.

Brokers rationalize this practice on the grounds that they protect the borrower themselves. The broker absorbs the loss if interest rates go against them. But it is fair-weather protection that disappears when the consumer needs it most—during an interest rate spike.

For example, in the two-month period January-March 1980, rates on 30-year fixed-rate mortgages jumped from 12.88% to 15.28%. A broker who locked for 60 days at 12.88% would have to pay a lender about 15 points to accept a loan with that rate in a 15.28% market. The broker would either go out of business, or deny that a lock was given. (Broker locks are oral commitments.) The borrower would be left high and dry in either case.

Broker locks are a deceitful practice because the borrower is led to believe that the lender is providing the lock. To protect yourself, insist on receiving the rate lock commitment letter from the lender identifying you as the applicant.

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Secrets of the Credit Industry

Secrets of the Credit Industry

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