Consumer Guidelines for Mortgage Borrowers by Michael Licamele

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Whether you're a homebuyer or a refinancing homeowner, investigate all of your options to find the mortgage that will best meet your individual needs and circumstances. The following practical advice offered by the Connecticut Department of Banking is intended to help make your mortgage loan application process proceed smoothly.

1. Make sure that the mortgage lender or broker you are using is properly licensed. All non-bank lenders and brokers in Connecticut are required to hold a license issued by the Department of Banking. If you are unsure if a particular lender or broker is licensed, visit the Department's Consumer Credit Division's web site.

2. Determine whether you would prefer to deal with a lender or with a broker. A lender will make a mortgage loan in its own name. A broker will, for a fee or commission, find or arrange a loan for you with a lender.

One of the advantages of applying for a loan with a direct lender is that you will deal with the entity (person or company) who will actually make the decision on whether or not to approve your loan application. This direct business contact offers comparatively less opportunity for miscommunication to occur during the application process.

Brokers, in contrast, are unable to make credit decisions or issue mortgage commitments. Additionally, some lenders are correspondent lenders which means that they intend to immediately sell whatever loans they make to a wholesale lender. Correspondent lenders do not usually make credit decisions either.

You may find that a broker or correspondent lender can provide you with more choices of loan products than any direct lender. Brokers or correspondent lenders can also shop difficult and substandard applications to a variety of direct lenders.

While there aren't any set rules to determine whether you should choose a direct lender or broker, you should know when submitting your application which type of mortgage origination organization you've actually selected.

3. Another option for mortgage loan applicants to consider is a rate and point lock-in agreement. A lock-in is a lender's agreement to make a loan at a particular rate, with or without certain points, provided that the loan is closed by a specified date. Brokers may not issue a rate lock-in agreement themselves, but they may transmit a lender's lock-in offer to an applicant.

As a mortgage loan applicant, a lock-in agreement will protect against rising interest rates. But, in an environment where interest rates are falling, a lock-in may prevent you from obtaining the lowest possible mortgage rate. A decision on whether a lock-in may be advisable will depend in part on your forecast of whether interest rates will rise or fall (or remain steady) during the time it will take to process your application. You'll also need to consider that some lenders may require a fee for such a lock-in agreement, which can often be as high as one point (1% of the loan amount).

Here are some hints to keep in mind if you do consider a mortgage rate lock-in agreement:

· Beware of short lock-in periods. Ask about the average time it takes to process an application, given the current market conditions and do not accept a lock-in period which fails to provide a reasonable cushion of time for you to receive a decision, even if the agreement will offer you a slightly better interest rate. Do not accept an oral lock-in agreement. Always ask for the lock-in agreement in writing, so that it will be enforceable.

· Keep in mind that lenders do not need to comply with the terms of the agreement if the information they request is not provided promptly; if, after a commitment is made, an applicant delays the closing beyond the lock-in period date; if an applicant fails to comply with all of the conditions contained in a loan commitment; or if any information given in the

application proves, upon verification, to be significantly inaccurate, prompting a need for the lender to further investigate the application. A lock-in agreement will also be invalidated if your mortgage application is denied or if the type or amount of your requested loan must be changed.

· It is very important that you diligently meet all of your obligations. Be sure that your application contains detailed and accurate information. Lenders may find errors while processing your application and inaccuracies will needlessly delay the process. Provide all the additional information requested by a lender and retain documentation. If you are unclear about what a lender needs, request an immediate clarification. Do not make assumptions. Comply with all the conditions set forth in your loan commitment, and again document your compliance. Be certain that your attorney can close by the date specified in the lock-in agreement.

· State law requires that a lender close a loan at the rate specified by the lock-in agreement even if the lock-in period has expired, unless the delay in closing has been caused by an applicant as described above. When you receive a mortgage rate lock-in agreement, let the lender know that you are aware of your rights under state law and that you will not tolerate a loss of your locked-in rate.

Michael Licamele is the Editor of MortgageAlmanac.com and President of Residential Finance Network at rfnc.com.