Question Details

Rd, Home Buyer in Chicago, IL

I am using a mortgage broker for a refinance. I was willing to give up a bit on the rate for the broker to

Asked by Rd, Chicago, IL Wed Feb 18, 2009

cover my closing costs. I initially had a 30-day lock. The broker has had to extend the lock twice in terms of two 15-day extensions because the loan couldn't make it through underwriting. The broker is now saying she's not making any money on this loan and wants me to come to the table with $710 in closing costs, which was not part of the original GFE. Is this ethical and can she do this. The rate I locked in was great and is no where near what is available today.

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Hi Rd,
It's very possible that the two extensions have cost this broker all her profit margin. The banks have been squeezing broker's commissions a lot recently and with the flood of refi applications that have come in the last 8 weeks 30 days is not really a realistic time frame to complete things right now.

Broker's are basically self employed, commissioned salespeople meaning their entire pay is variable and at risk and they likely have to pay for their own health benefits and a slew of other things. They're not in business to lose money or do deals for free, so it's possible they would let you walk rather than not make a cent on your loan. If the rate you locked in at is well below where they are currently at, the $710 sounds like a reasonable amount. Frankly I'm surprised she offered a no-cost option because banks can't really offer that these days and it was my understanding that broker pricing had detertiorated to the point where it was tough for them to do it too.

To answer your question, YES she can do this. Is it ethical? If she's being honest with you then I would say it is ethical. Circumstances did change, it took longer to close and the rate lock needed to be extended which costs $$. Had she known it would take 60 days to close your rate or fees at the time of lock would have been different. If after she locked your rate she promptly received all your documents and turned in your file to the lender then the delays were on the lender side and it wasnt really her fault. Now on the flip side if you think she's being dishonest and was planning this all along, then yes I would say it's unethical. doesnt sound like the case here though

It's a refi Rd, and you have the right to close or not close it's your choice. If you're saving a bunch of money in the long run then bite the bullet and bring a few bucks to close. If it's more a matter of principal than anything then walk away
2 votes Thank Flag Link Wed Feb 18, 2009
By the way, I work for a big bank. I'm not a broker. But I have been one in the past and I have a lot of friends who still are and they have relayed their frustrations recently in terms of dealing with their lenders, the pricing on loans, and turnaround times.

It's a crazy time in the lending industry right now, so anything you think you might know about mortgages from past transactions - throw it out the window because it probably doesnt apply in today's environment
0 votes Thank Flag Link Wed Feb 18, 2009
Hi RD - I too am a broker and hold to my GFE as a committment to my customer. Underwriting is taking much more time, however going into the process most lenders can give an estimate of their turn times. I always review this information and discusse it with my customer. My questions would be... Were there delays in processing due to unforseen issues? Did you get all information to her not to cause delay? Each time the lock is extended there is a fee - Typically .25 of the loan amount for a 15 day extension.

How much are you benefiting from this transaction? Due to the volitility of the market, there is really little control over underwriting and turn times. If you feel she has done everyting she said, I would consider working with her to save the rate. She will have to pay for another extension or you will be faced with re-locking the loan at a higher rate. This is tough one RD - We do our very best for all concerned in this enviornment.

I do not know how much help I have been, but I am sure you will make the best decision for your situation. Glad to help....
0 votes Thank Flag Link Wed Feb 18, 2009
She can probably do it legally, but I think I would look to someone who is very upfront with me and keeps their word.
I'd be shopping around - there is always someone else that can help you.
0 votes Thank Flag Link Wed Feb 18, 2009
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