By Troy Baars
Defined as the art of making and defeating locks, locksmithing has been around for over 4,000 years. In the mortgage industry, locksmithing has a slightly different definition, though one could argue that it, too, has security implications. Thus, given the current market, lenders looking to operate with maximum efficiency and impact would be well advised to take a page from this ancient practice in establishing best practices for their lock desk.
The art of the lock desk lies not only in the initial lock, but also rate lock management to ensure a lender’s pipeline and locks are in the best position to perform. While the operations staff focuses on shepherding a mortgage application through the underwriting process to the closing table, the lock desk ensures the rate lock receives the same treatment and is monitored and managed until the loan reaches the closing table.
Effective lock desk management includes actively tracking rate lock expiration dates, working with loan officers to ensure loans that are expected to close have appropriate lock expiration dates, thus avoiding “free” rate lock extensions. This last point deserves extra emphasis. There is NO such thing as a free rate lock extension, at least from the lender perspective. The borrower may appreciate it, but the organization’s bottom line will not. By providing what is essentially a free rate lock extension to the borrower, the lender creates a distortion in its earnings and potentially impacts the expected gain on sale of that loan.
The lock desk must receive a daily report of locks set to expire. The lock desk should review this report and then reach out to loan-level support staff for an update on the loan status for those loans. Without taking action, those rate locks might expire, and if the loan is still active, the rate will need to be re-locked, typically at the expense of the lender.
Rate lock extensions are going to happen – it’s just a fact of life. The key is to limit those extensions by limiting the risk related to rate lock extensions. In a boom cycle, whether purchase or refi, the average time to close a loan will increase simply due to pipeline volume. With delays in processing, underwriting and appraisal delivery, the possibility of a rate lock extension only increases. Lenders can limit this risk by restricting shorter-term locks. Short-term locks should only be allowed on applications that are approved or ready for docs. Other loans still in process should require longer-term locks to allow sufficient time for processing and approval.
Pipeline and lock desk management also includes ensuring loan status updates are properly reflected in a timely manner. Any delays may result in a loan status progressing from application to approval in a single day, which creates changes in the hedging strategy. For lenders, especially those operating on a pull-through model, ensuring accurate loan statuses throughout the process is important for many departments, including the lock desk. Managing a lock desk effectively and profitably entails more than simply following a checklist – it is an art. Lock desk management requires the skill to coordinate between multiple departments and the precision to ensure rate locks won’t fall through the cracks. Locksmithing a lock desk isn’t just about having the keys to rate lock management – it’s knowing how to use them.