Check out Countrywide, Wells Fargo, Washington Mutual and ABN Amro, which does business through InterFirst Mortgage and Standard Federal and LaSalle banks. Some of these mortgages may be sold through mortgage brokers. Olson says these lenders are about the most aggressive pricers nationally. "On any given day, one or another would have very aggressive rates," he says. "They've been willing to sacrifice short-term profits for long-term market share." But don't expect rates on all their mortgage products to be equally attractive. Keep in mind that service is just as important as rate. If your client's lender fails to pay your client's property taxes on time, your client could be hit with the fine.
If your client is not expecting to prepay a mortgage, he or she might ask the lender for a prepayment penalty in exchange for a lower rate. Some lenders may be willing to lop off one-quarter to one-half of a percentage point from the rate, Olson says. Better yet: Seek a "soft" prepayment penalty, suggests Zehnder. This means your client gets a rate cut but only suffers the prepayment penalty if he or she refinances. With a "soft" penalty, there is no prepayment penalty for selling the home and moving.
Thrifts historically have offered lower-rate and lower-cost ARMs, notes Keith Gumbinger, vice president for HSH Associates, Butler, N.J. Mortgage brokers are more aggressive on fixed-rate loans.
Experts say that to avoid losing a good rate when rates are rising, your clients need to be sure to get confirmation of the rate lock in writing. Mulligan says your client also needs to give "consideration" for the rate lock. Ten years ago, according to Mulligan, a borrower typically could pay cash up front for a rate lock. Today, there may be no fee required. Instead, a borrower may be charged a higher mortgage rate, based on a specified lock-in period. Charles Schwab tells customers that they have the rate and immediately demands closing costs, Mulligan says. "That's at least a form of consideration."
Consideration needn't be a flat fee. However without documentation that your client has paid anything to lock in a rate, there may be no recourse if a lender fails to honor it. This is bad news if rates rise.
Another issue that is important when rates rise: How solid is your client's lender?
In August, Capitol Commerce Mortgage, Sacramento, Calif., abruptly closed its doors. Hundreds of customers in 15 states were left out in the cold just as rates were rising.
Ted Grose, director of consumer research for the California Association of Mortgage Brokers in Sacramento, advises asking a mortgage broker, who may be funding the mortgage from another source, for a copy of that lender's loan confirmation to the broker. This way, your client may stand a chance of obtaining the loan even if a loan originator goes under. "Get periodic status reports from the originator," he adds. "Those can be provided electronically with a competent originator."
It also is a good idea to check on the mortgage company with the state's regulator and the local Better Business Bureau. Know in advance the average time it takes the lender to close a loan and make sure your client closes within that time frame. If given an option, your client might even ask for a lock-in period based on that research.
The good news: It's easier to back out of a high-rate mortgage if rates suddenly drop. "Twenty years ago, loan originators were more aggressive in locking the consumer into a conforming loan," Grose says. But competition has changed that. Often a borrower isn't locked into a loan until loan documents actually are signed, Mulligan says. Even then, the Truth-in-Lending Act offers refinancers a three-day right of recision on the transaction.