The Rate That Was Locked Only in the Borrower's Mind
Robert is a licensed MLO at a supervised lender in Lewiston. On Tuesday he tells borrower Andrade by phone, "I've locked you at 6.125% for 60 days." He never submits a lock request to the lock desk. Twelve days later, after rates rise, Robert calls Andrade and says the rate is now 6.5% "because the market moved," and adds 1.375 discount points to hit a competitor's payment quote. On the application, Andrade had said his income was "about $75,000, plus a one-time $35,000 equipment sale last year." Robert enters $110,000 as base employment income, marks the file as full documentation, and initials the borrower-authorization page himself because Andrade was traveling. Robert also tells Andrade the loan has "no prepayment penalty," although the note carries a 2% penalty for two years. Both loans are still in underwriting.
1. Identify each act in this file that constitutes prohibited conduct under Maine law and explain why each matters.
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At least four separate problems, and they escalate in severity:
- Misrepresenting the lock. Telling a borrower a rate is locked when no lock exists is a misrepresentation of a material term. Maine requires originators to deal honestly and prohibits fraudulent, deceptive, or dishonest conduct, and the Maine Consumer Credit Code's unfair-or-deceptive-practices provisions reach the same behavior independently.
- Inflating income. The borrower described roughly $75,000 of base pay plus a one-time sale. Entering $110,000 as recurring base salary is a material misstatement on the application - not a rounding judgment - and it can constitute application fraud.
- Signing the borrower's initials. Signing or initialing for a borrower, even to "help" while he travels, is a falsification of the record and destroys the reliability of every other borrower acknowledgment in the file.
- Misstating the prepayment penalty. A false statement about a loan term is a misrepresentation whether it appears in writing or is only spoken.
A single one of these can support license discipline; together they suggest a pattern rather than an isolated lapse.
2. What should Robert have done about the rate lock, and how should the lender handle the 1.375 points it now wants to charge?
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A rate lock exists only when the lock desk executes it and it is confirmed to the borrower in writing. Correct handling:
- Submit the lock request the same day and send written confirmation showing rate, lock period, expiration date, points, and extension costs.
- Do not use the word "locked" until that confirmation exists.
When rates moved, the failure was the lender's, not the borrower's. The borrower should not pay for it. The lender should either honor the quoted 6.125% or, if the quote genuinely was never placed and the lender chooses not to absorb it, document the error, issue a revised Loan Estimate within three business days of the changed circumstance, and let the borrower decide whether to proceed.
Adding 1.375 points to hit a competitor's payment number is not a changed circumstance. It is a pricing change that increases the borrower's cost without a valid justification, which raises both the good-faith/tolerance standard and Maine's prohibition on misrepresentation and on charges for services not actually performed.
3. The lender's compliance officer learns of the file. What should the institution do, and what reporting duties apply?
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The lender should treat this as a potential fraud and supervision event, not a customer-service complaint:
- Preserve the file, phone logs, lock desk records, and NMLS records before anything is altered.
- Correct the application using only information the borrower actually supplied, and have the borrower review and sign it.
- Re-underwrite and decide whether the loan can close on truthful information; reprice or absorb the points and re-disclose.
- Review Robert's other files for the same patterns - unsupported income, unexplained initials, verbal lock promises.
- Report the termination to NMLS if Robert is terminated for a violation; the employer reporting obligation applies to fraud and regulatory violations, not just convictions.
- Notify the Bureau and consider borrower remediation where fees were charged.
A lender that discovers this and quietly closes the loan has converted one originator's misconduct into an institutional violation.