Qs about floatdowns

If you are doing the loan through ing, they don't charge for a float down.  who is the loan through?

Planners answered this question fairly well when I asked it on:

Should i refi at 5.75% for a 30 year fixed or wait?

I have no problem offering a float down option if my borrowers have no issue with my float up policy. 

To the brokers that will play 2 lenders against one another lock one in an float another.  Integrity is not your strong suit since most lenders lock policy is best effort and if that is how you offer a float down option, you really are not making a best effort to close that loan with the lender you locked in with.  At some point lenders will get wise to it and charge brokers to lock in a loan up front and penalize them for fall out.

Like the NO DOC loan it will be abused and eventually disapear.

Here's how float downs work, and for all of you who have never seen this it does exist, just maybe not in your part of the country.

Rate locked 5.875 with .75 in YSP

Cost to float down anywhere from .25-.625 hit to YSP depending on bank.

2 weeks later 5.625 has 1.375 in YSP

Bank has .375 hit for float down

Lower rate to 5.625 with YSP of .875

Not a new rate lock, it expires at the same time as the original.

Client rate goes down .25 YSP goes up .125

WIN-WIN

To answer the question in advance of who does this?

Wells Fargo, Countrywide, Wachovia, Citi, Suntrust

That's not free, Rates have to improve enough for the math to work.

Keeping in mind that I am a broker, and have no vested interest either way in floatdowns, I have choosen not to offer them on refis, and only rarely if insised on with purchse transactions.

I have always seen them as more a marketing tool than a serious client benefit, Rates usually have to drop 25 basis points at a minimum (your example is a 40 bp drop), a huge and extremely unusual move over the week or so it takes me to get within 10 days before closing on a refi. Meanwhile, all the lenders you mentioned are about 1/8 percent to 1/4 percent higher than the deal I can do today with no floatdown sourcing. I'm not saying that in certain extremely rare circumstances a client can't end up with a better deal, particularily on a 45 day lock purchase, but in most cases the lender is making more by selling you a higher rate upfront than they give in the form of final rate improvements. Otherwise, why would they do it?

It reminds me of the warrantys that electronics sales people alyays try to sell you when you buy something. On occasion they work out, but for most borrowers they just add needless expense, for mopst lenders a source of profit in that they induce you to take a higher rate than is otherwise available.

I am absolutely not saying there is anything wrong or unethical about offering them, I just don't think they offer the best value to most borrowers.

Tom O'Leary

plannersmortgage.com

I didn't say it was free.  I explained how float downs work, period.  I also made it clear that different lenders have different hits.

Some lenders may do this for free, just because I am not aware of any doesn't mean it doesn't exist. 

Yes, rates have to go down to float down.

Keepitreal doing a float down as you suggest is fine.

My integrity comment was about double apping, locking one and floating another with different lenders.

Very good explaination keepitreal1.  Yet as Salem says, the market has to improve enough to make sense.

Also, some brokers do lock and deliver elsewhere which Salem referred to as well.  Non-delivery can evenually bite you.

Best Regards

Very nice and good as well...   Hey Wayne.....  WB in the oc

Planners mentioned on the other thread that lenders will only "split the difference" if rates drop anyway.  Is this the experience of all the Loan Officers, or do some lenders actually give you the best rate of the day, the best rate of the month?

And is your experience that the prenegotiated discounted rate is still better than the best "float" rate?

Pasadenan-

Take "split the difference" as an approximate, not an exact statement. My main point is that for the lenders I know you do not get the new rate, but something somewhere between the new and old.

SInce we're doing the "Inside Baseball"stuff on this thread, here's another thing. Your lock in term has an impact on y0our final quote. If my wholesale buy rate @ 6% for 30 days is par (zero points), I might get an eigth rebate for a 21 day lock, and a quarter rebate for a 10 day lock. Going hte other way, it might cost me a quarter for a 45 day lock, and half or more for a 60. So the answer to your second question is that the theoritical best rate is a 10 or 12 day lock once the loan is fully approved, although that only works if rates stay the same or go down while the loan is in process. That's another reason lenders might be willing ot do a floatdown, they can recommit on a shorter term and the loan is worth more than if htey were relocking for 30 days.

Tom

Thanks for the tips fellas...

Thanks for everybody's input. My lender offers the floatdown with no apparent extra fee, either during the application or when the floatdown acutally occurs. The way I see it is that I have really nothing to lose, if the rates fall then I get a better rate, otherwise I lose nothing. His rate was almost identical to every other lender I spoke with, just some minor differences in closing costs was what it came down to.

My question was more about how do I actually confirm that I am eligible to float down - i.e. how do I find out if rates have actually dropped? The lender's website does not have a realtime feed of rates, so I am at his mercy to call me and tell me "our rates have dropped so I locked you in at a lower rate". I think that is a conflict of interest as they will make less money off my loan if it does float down...

I am currently locked for 30d at 5.5% with one point buydown, and lender has promised to change the rate immediately to 5.25% if the rates were to fall this low between today and 10d before closing.

Any input is appreciated.

One way to keep them honest is to use another lender that does keep their rates current as a benchmark. See what e-loan.com is charging for a loan on your terms today, then check back occasionally to see if their rates have improved. If they have, it might be a good time to speak to your lender.

Bankrate.com is another source for general market information, and try hsh.com

Tom O'Leary

plannersmortgage.com