Profile picture for billingsmn

Can a lender raise interest rates before a rate lock expires?

My son received a rate lock from his lending bank.  It appears the bank is actually a third party broker, and the lender is an "investor".  After explaining to the bank 3 times that his wife had stopped working, a fact not reflected on the previous year's 1040, and that his projected income should be based on his income alone, the bank -- without my son's knowledge -- calculated his debt ratio on his and his wife's former combined income.  The interest rate was set and locked with this erroneous information.  15 days before closing, the bank has discovered the discrepancy and calculated a higher debt ratio.  They now claim they must move the mortgage to a different "investor" who will accept the debt ratio, but at an interest rate .125% higher.  Can the  bank legally do this? What's going on here?
  • November 07 2013 - Boston
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Answers (6)

Yes, in this case it appears the loan no longer qualified with the locked investor. The borrower 's rate lock is actually with the investor, not the broker company. That the Mortgage Broker was able to save the deal by switching investors displays exactly why the Broker business channel has advantages over bank and non-bank lenders. Brokers have many programs to choose from and can easily change direction when necessary.
  • November 13 2013
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Although, this is the lenders fault there's not much you can do about them raising the interest rates. They have the ability to do that. If you really want, you can try to speak with other lenders to compare but that's if your son really wants to go through the whole process again. Also, it's still great that they can get the loan done even with the income issues. Well I hope this helps and good luck!
  • November 07 2013
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Profile picture for shapiroamg
I would assume the debt ratio was pushing 43-45%. Once above 45% (take out daughter-in-laws income), then you may have issues. I can understand how that happens as every lender/investor will be a little different from each other even though they offer the same basic mortgage product.  With 15 days to closing they should be very lucky they have enough time to sort this out and get any loan closed. 

Definitely, you son should go back and review any conversations about the wife's income/employment. Perhaps they could ask for some help on closing costs like a free appraisal or something.
  • November 07 2013
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Agree with Hamp..In one way he should feel good that the deal could still be done at all.  Like he said I would see if he can argue the stance that the lender screwed up a little bit and eat some of the cost but I am not even sure as a broker that he even able to do that. But I do understand that it does leave a bad taste in your mouth about the timing of the whole thing.   How long has he been under contract. Would have thought this fact would have come to light well before this.
  • November 07 2013
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Profile picture for RafaelAPRG
You should talk to a few lenders and an attorney usually they are more equipped then a real estate agent to handle a question like this.  I would get several opinions.
  • November 07 2013
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Yes, probably, even though they supposedly caused the misunderstanding and resulting problem. Your son can also try to convince them that the difference in revenue that will result, is not worth losing his lifelong business over. When it was discovered that the wife's income was not going to be on the application, the first loan app, it's GFE and Lock, became a nullity, basically. The fact that it can still be done, at only .125 higher, is good news. At worst the Bank should split the cost of the pricing difference due to the error. Did your son, and his wife, sign an application with her income showing on the app?
  • November 07 2013
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