We do not lock rates. However, we will honor the rate disclosed on the LE for the product chosen at application if the product stays the same to closing. If during the underwriting process/before closing the product changes we will reprice the loan to the rate on our rate sheet for the updated product choice.

In the current environment, some loans are taking more than 3 months to close. With rates expected to continue to rise, management would like to change the internal policy of honoring rates disclosed on the LE to closing if the product doesn't change and instead be able to reprice the loan to the most current rate sheet pricing if the loan does not close within 90 days of application.

Is there a problem with this? Does that mean that we have to develop a rate lock process? or does the fact that we don't lock rates make so we can reprice at any point we choose, as long as we have developed a process internally that is fair and applied consistently so we don't end up with Fair Lending violations?

In 90 days you might find yourself 150 or 200 basis points underwater - I would be asking what difference does it make if it is day 89 or day 91. Also, who's fault is it that it is taking that long to close? There are a lot of considerations when determining the fair lending impacts of such a policy. Not saying what you propose is undoable, but you will need some rock solid controls in place.

What I do find interesting is watching bankers starting to panic that have never been in a fast-rising rate environment. In 1980 for example - here is just a little snippet of the prime rate history. We might get a 25 basis point move in a month right now - back then the Prime Rate would change about weekly.

March 4, 1980 - 17.25
March 7, 1980 -17.75
March 14, 1980 -18.50
March 19, 1980 -19.00
March 28, 1980- 19.50
April 2, 1980 - 20.00

I appreciate the context. We aren't quite underwater for the changes in prime because we charge an initial premium rate that has a pretty good cushion. But when prime moves management does assess whether or not to increase the initial rate.

While it would be too much to get into to describe the nature of our market here, one particular reason for delays is the shortage of appraisers. I personally had this experience in 2021, it took 5 months for an appraiser to accept and appraise my house due to the back log. Bank staff is doing everything they can to move things along, but basically the holdups are out of the Bank's and customer's hands.

I agree that rock solid controls would be needed. I just needed to be sure that we could do this without having to move to a rate lock process. These are all portfolio loans.