The Rate Lock That Expires Before Closing
A lender's loan officer, Theo, locks a borrower at 6.25% for 45 days on a $410,000 loan. Sixteen days before the lock expires, the closing is delayed because the appraiser needs a re-inspection; the delay is the lender's fault because the appraisal was ordered late. Rates have risen to 6.75%. Theo tells the borrower the lock 'will probably be extended at the same rate' but does not put anything in writing and does not request a formal extension. The borrower's realtor emails Theo asking for written confirmation of the rate so the borrower can sign closing documents. Theo forwards the original lock confirmation without noting the delay or the expiration.
1. What are the problems with Theo's communications?
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Three problems. First, Theo gave an oral assurance ('will probably be extended') that he could not support and did not document - oral rate promises create disputes and may violate the lender's own policies and fair-dealing standards. Second, forwarding the original lock confirmation without disclosing that the lock is at risk of expiring is misleading; the realtor reasonably reads it as current confirmation. Third, Theo did not initiate the formal extension process even though the delay was the lender's fault, which is exactly the situation where a lender should absorb the cost.
The correct conduct: request a formal lock extension in writing, document that the delay was lender-caused, and give the borrower accurate written information about the rate, the expiration, and any extension cost before closing documents are prepared.
2. Who should bear the extension cost, and how should Theo proceed?
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Because the delay was caused by the lender's late appraisal order, the lender should bear the extension cost rather than passing it to the borrower. Theo should submit the extension request with documentation of the cause, obtain written confirmation of the extended rate and new expiration, and send that written confirmation to the borrower and realtor - correcting the earlier forwarded document. He should also escalate to his manager so the lender's error is acknowledged. If the lender will not extend at the original rate, Theo must tell the borrower promptly and in writing so the borrower can make an informed decision before closing.