Educate clients about the benefits and consequences of locking rates

When rates went down after the Brexit vote, many of my pipeline were asking me about renegotiating their rate as they were already locked. This created a lot of tension and extra work. I understand that it is typical for this job, but I really did not know what to say to my clients. Any advice in this regard?

--Many loan officers asked this or similar questions.

There is no doubt that this is a dilemma. You want to serve your clients and you want referrals from your clients, but when their locked loan needs to be renegotiated, this costs the company money. You are touching upon an area that provides one of the most difficult situations for loan officers and for companies. If you refuse, you might not only lose a referral source, but they might start shopping other companies and you might lose the deal. There is no one clear answer, but in the next few weeks, I will cover a few points that could help in certain situations.

First, it is important to educate your clients regarding the risk they are taking upfront whether they lock or float. If they lock and rates go down, they lose the rate game. If they float and rates go up, they lose the rate game. You would be surprised regarding how many loan officers just automatically lock clients in to "protect them" without giving the clients a clear choice about the risk they are taking in the other direction. If you educate them clearly, including the understanding that a "lock is permanent" -- you will be subject to less calls when rates move. This doesn't mean that locking is the wrong decision. But it is their decision and they must understand the benefits and consequences. Next week we will talk about the difference between refinances and purchases and the timing of such calls.

--Dave Hershman

Dave Hershman has been the leading author and a top speaker for the industry for decades with six books authored and hundreds of articles published. His website is www.originationpro.com. If you have a reaction to this commentary or another question you would like answered in this column? Email Dave directly at [email protected].