Homebuyers can lock a rate for 150 days ahead of a sales contract

Locking a rate is a key tactic in this inflationary environment.

By JEFF LAZERSON | jlazerson@mortgagegrader.com | MortgageGrader.com | October 18, 2022

* Article originally posted in Orange County Register on October 13, 2022

As mortgage rates rise to nearly 7% this week. Home shoppers desperate to somehow keep payment affordability within reach will be relieved to know mortgage brokers may be able to offer viable solutions.

In industry speak, we call it “lock and shop.”

Homebuyers can get pre-approved, lock in a mortgage rate for 150 days and then go find their dream home.

It’s the best protection against mortgage-rate inflation, in my view. After all, the 30-year Freddie rate was 3.22% in January compared with 6.92 today.

The lock program offers no upfront fees. Stunningly, there are no mandated advanced deposit fees for this unusually long upfront rate lock. This is the first time in my career I’ve ever seen anything like this. If you were able to find a long calendar rate lock at all, it almost always required an advance non-refundable deposit.

If mortgage rates happen to drop before a buyer gets their loan docs completed, a rate float-down is available, too. Clearly, the upfront, locked price will cost more than say a typical 30-day rate lock. Think of a certificate of deposit but in reverse. The longer the lock the more it pays (or in this case costs).

On new home builds, a slightly different program is available for buyers with a signed contract in hand. Buyers can lock a rate upfront for six months and pay a one-half point (of the loan amount) as a nonrefundable deposit. For example, on a $600,000 loan, it’s $3,000. Or lock upfront for a year and pay a 1% advanced deposit.

Last week, I wrote about a step-up, two-year temporary rate buydown. To my astonishment, I found a 3-year rate buydown.

Here’s an example: On a $647,200 loan amount, a buyer would have a $3,043 principal and interest year-one payment on a 3.875% interest rate. For year two, the monthly payment would be $3,425 with a 4.875% rate. By year three, the buyer would be at $3,828 and 5.875%. Years four through 30 would rise to $4,252 at 6.875% The temporary buydown subsidy would cost $29,497. Either the seller or the realty agents or all parties could pony this up. The loan origination fee for the basic 6.875% rate would be roughly $647,200 or 1% of the loan amount.

Besides increased affordability, the beauty of the buydown is any remaining subsidy is credited back to the homeowner should they refinance in the first 47 months of the mortgage.

My bet is mortgage rates will come crashing down at some point next year as a recession looms.

Recently, I attended the National Association of Mortgage Brokers annual convention in Las Vegas. It’s where I heard details on the lock-and-shop programs. Please indulge me as I take you through some of the things I learned or observed at the convention.

NAMB’s president Ernest Jones Jr. told me this year’s convention attendance was 2,101. NAMB, by the way, has 40,000 members. Plus, one (me).

Jones convinced me to revive my membership. It’s the first time I’ve renewed it in about 17 years. I stopped supporting the organization because I was disgusted with the mortgage industry’s predatory lending shenanigans for which NAMB stayed quiet.

Now that I’m a card-carrying member of NAMB, I’ve got some suggestions for Jones and his team.

First, they need a dress code at conferences. Sadly, some attendees in Vegas showed up looking look they just came in from mowing the lawn. Members of the public, government officials, policymakers, investors and potential new industry recruits attend these events. Dress appropriately!

Perhaps worse was the swearing by the invited speakers. There is simply no place for speakers to drop f-bombs or the like. This shows no class. Professional organizations can’t have this and be respected.

My most adrenaline-filled moment of the convention was when I met a former Angels player. Retired pitcher Ernesto Frieri had his back to me as I approached his company’s (Irvine-based Loanwyse) booth. Frieri turned and almost tackled me as he introduced himself and his company. He is well on his way to being an excellent mortgage closer, too. 

Freddie Mac rate news: The 30-year fixed rate averaged 6.92%, its highest level since April 2002 and 26 basis points higher than last week. The 15-year fixed rate averaged 6.06%, 16 basis points higher than last week.

The Mortgage Bankers Association reported a 2% mortgage application decrease from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $647,200 loan, last year’s payment was $1,525 less than this week’s payment of $4,271.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.75%, a 15-year conventional at 5.375%, a 30-year conventional at 6.125%, a 15-year conventional high balance ($647,201 to $970,800) 6.5%, a 30-year high balance conventional at 6.99% and a jumbo 30-year purchase, fixed at 6.125%.

Note: The 30-year FHA conforming loan is limited to loans of $562,350 in the Inland Empire and $647,200 in Los Angeles and Orange counties.

Eye catcher loan program of the week: A 30-year jumbo purchase mortgage locked at 6.25% for the first seven years, interest-only without points.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com.

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* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.