| Fidelity Mortgage Unable to Meet WA Rate Lock Commitments
State warns consumers September 8, 2003 By PATRICK CROWLEY |
| Rising rates have left some borrowers with worthless rate locks from an Arizona mortgage lender.Regulators in the state of Washington have begun warning consumers about locked in mortgage interest rates after two companies were unable to honor rate agreements reached with borrowers.
Capitol Commerce Mortgage of Sacramento, Calif, shut down it operations in August after rising interest rates apparently made it impossible to come through with a promised interest rate, according to the Washington Department of Financial Institutions. A second company, Fidelity Mortgage Co. of Tucson, Ariz., recently informed borrowers it also was unable to meet commitments it made on interest rates. Neither company broke the law, but regulators wanted to inform consumers about the problems that can arise when interest rates on a loan are locked in. About 20 to 25 complaints were made to the state, with the first coming about Fidelity, Scott Kinney, communications director for the Washington Department of Financial Institutions, said in email response to questions from MortgageDaily.com. Both companies informed consumers in writing that rates they had agreed on — or “locked in” — were no longer available. Consumers were under no obligation to take the loan at the higher rate, Kinney said. “We received several complaints from consumers because they weren’t able to follow through with rate lock agreements” with Fidelity, Kinney said. “Then days later we started hearing about what sounded like a similar situation at Capitol Commerce. In both instances, the documentation made the consumers aware that if the rate was no longer available the deal would be off. “Since there was little we could do from a statutory stand point, we wanted to be proactive and alert consumers of the correlation between the increase in the market rate and their ability to secure a loan through a broker,” he said. Attempts to reach Fidelity Mortgage and Capitol Commerce were unsuccessful. The consumer alert issued by Washington recommends that consumers “closely scrutinize any lock agreement and ask their mortgage company to explain the terms of the lock.” “Specifically, consumers should clearly understand the conditions under which the interest rate lock can be lost,” the alert says. “Such locks many or may not be guaranteed and the lock agreement may carry clauses that provide the mortgage company with a way out if they cannot perform. In such situations borrowers who have ‘locked’ their rate may find that the agreement does them little good when interest rates turn upwards.” Fast-moving interest rates that can change hourly make the mortgage market “an extremely volatile environment,” consumers are warned. “The situation is exacerbated when a large number of consumers seek financing at the same time,” the state said. “When loan volume is very high lenders may simply be unable to perform within the set period of the lock. Under most lock agreements the rate must then be renegotiated at the current market rate. “For consumers that have already been informed by their mortgage company that their loan will not close at the expected rate, they may not have a choice other than to renegotiate a loan at current rates or seek out the services of another financial institution,” state regulators said in the alert. |
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Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at: [email protected] |
