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Refinancing Surprise Jolting Homeowners

Time Runs Out on Low-Rate Locks

By Joshua Partlow
Washington Post Staff Writer
Tuesday, August 26, 2003; Page A01

Homeowners who rushed this summer to refinance their mortgages at super-low interest rates are finding that the volume of applications is choking the financing system. This means that the rate locks they counted on to protect them against rising expenses are expiring before their loans can close.

The result: Costlier loans, angry borrowers and climbing numbers of complaints to regulators.

_____Live Online_____
11 a.m., Tuesday: Joseph Child, president of the Maryland Association of Mortgage Brokers, will be online to discuss mortgage rates and the housing market.
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"We've received many, many calls regarding complaints about interest rate lock-ins. We don't have an [official] count, but our telephones have not stopped ringing," said E. Joseph Face Jr., commissioner of Virginia's Bureau of Financial Institutions, which oversees the state's mortgage lenders. In Maryland, the commissioner of financial regulation has received about 1,000 mortgage-related complaints so far this year, up from 863 in all of 2002. In the District, where the complaint tracking system is relatively new, regulators said they hadn't seen a major change.

Problems could increase everywhere because 60-day locks from the low point of the interest rate cycle, or just after it, are now expiring.

Earlier this year, mortgage interest rates plunged to their lowest levels in more than 40 years. That drew a record number of savings seekers to apply to refinance their mortgages. But rates have jumped in the past two months, from an average low of 5.21 percent for a 30-year mortgage the week of June 19 to 6.28 percent this week, according to statistics compiled by Freddie Mac.

In the face of these climbing costs, a rate lock is a security blanket -- an agreement, usually for 15 to 60 days, that a loan can be obtained at the rate that prevailed at the time of the lock. But according to those in the mortgage industry, the unprecedented volume of loan applications has slowed the system to a crawl. Sometimes that means the lock expires before the loan is ready to close. What happens next is often unclear, in part because it can be difficult to determine who is to blame.

Broken locks were little more than an inconvenience as interest rates were dropping. Now, though, expired locks mean that consumers could be asked to pay thousands of dollars more for a loan unless the lenders or brokers absorb the difference. On a 30-year $150,000 loan, the difference between 5.25 percent and 6.25 percent is $95 per month, or almost $35,000 in interest over the life of the loan.

Linda Jordan, a contract specialist at the Environmental Protection Agency, was one of many borrowers who lost her great rate. She said she set her 30-day lock at 5.5 percent on June 25 for a refinancing of the $388,000 mortgage on her house in Lorton. As settlement approached, Jordan, 42, said she was told by her loan officer at Aaxa Discount Mortgage, a brokerage based in Wilmington, N.C., that the lender couldn't finish the underwriting in time and thus her rate was no longer available. She decided that at the higher rate it was no longer worth it to refinance.

"I was shocked that [the loan officer] could just say, 'Oh, never mind,' " she said. "They were blaming everyone else. . . . I resent doing all the paperwork and then having them abandon you when it gets a little tough for them."

Jordan's loan officer, Tim Parent, said Aaxa processes 500 to 600 loans a month, and when Jordan began the refinancing process the industry was struggling to cope with the volume. He said that if Jordan had returned her loan documents more rapidly it might have helped, but that at this point she has little recourse.

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