Making decisions for your client can lead to nasty surprises

by MPA02 Sep 2014
Rates went down this spring and again in the summer and I was surprised. I had locked all my applications and then some asked for lower rates before they went to closing. Should I have been locking my applications?
--Edward from Indiana

I am getting the impression from your question that you are making the decision for your clients. I am hoping that is not the case. The decision to lock or float upon taking an application should be made by the client with advice from you. This is especially true because of the fact that you can't predict the future of rates and if you make the wrong decision, it is the client that must deal with the circumstances, not you. Your job is to educate.

That education must include three factors. The first factor is that no one can predict what will happen day-to-day, let alone a few weeks or a year from now. Second, you can let them know what is happening in the markets that is influencing the direction of rates right now. I publish economic commentary on a weekly basis and also confer with industry leaders such as Eric Holloman with RateLink.

Lastly, you must help the client understand what risk they are taking in both directions. If they lock, they take a risk that rates may fall. If they float, they take a risk that rates may go up. And may sure that you quantify that risk -- for example, what will a movement of 0.125% in rate mean to them on a monthly basis after taxes? Most loan officers don't take the explanation to a level that helps their clients understand the real effects of rate movements. 
--Dave Hershman

Do you have a reaction to this commentary or another question you would like answered? Email Dave at
Dave Hershman has been the leading author and a top speaker for the industry for decades with six books authored and hundreds of articles published.   His website is  If you have a reaction to this commentary or another question you would like answered in this column? Email Dave directly at   


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