Rate Spread

Posted By: Patricia

Rate Spread - 12/09/15 03:05 PM

I know this has been discussed in many threads before but just for the record I need some help. We have examiners here and they are saying that the date we used for rate spreads is not right. Background --- the bank does not have a lock-in rates. So we have been using the date the application was received as that was the date the rate was quoted. The rate did not change when the final docs were generated. However, I am seeing on some of the threads we should be using the date the final docs were generated.????
Posted By: raitchjay

Re: Rate Spread - 12/09/15 03:32 PM

I would think the danger in using the application date (if you truly don't lock rates) is that in a more volatile interest rate environment your bank might very well change (or want to change) the interest rate for an application that went on for a few weeks or months. Your current method seems to imply that you ARE locking in at the rate quoted at application. So if rates truly are floating, even though it might not have changed, your date doesn't work. That's my take anyway.
Posted By: Patricia

Re: Rate Spread - 12/09/15 03:42 PM

Thanks raitchjay.
Posted By: RR Joker

Re: Rate Spread - 12/09/15 03:48 PM

Agree with RJ
Posted By: Rocky P

Re: Rate Spread - 12/09/15 04:12 PM

Agree. Since you do not lock, your rate/date would be when the documents are printed.
Posted By: #12

Re: Rate Spread - 12/09/15 04:16 PM

For another perspective: the bank I was at prior didn't lock rates either. We established in procedure that the application date would be the date the rate was set, unless an appraisal came in and moved them to a different rate tier. Examiners were fine with that, as we established a set procedure and applied it consistently.
Posted By: David Dickinson

Re: Rate Spread - 12/09/15 05:20 PM

I don't believe you can say the date is always "x" or "y", if you don't lock rates. ยง1026.35(a)(1) says it is "the date the interest rate is set". That could be the application date or the date the GFE/LE was printed or some other date. It's when the date is set. Loan officers should be documenting when the rate was set and that's it.
Posted By: Rocky P

Re: Rate Spread - 12/09/15 05:39 PM

Usually when the rate is not set, it "floats," usually to close. Under those circumstances, the banks I have been at sets the rate at the prevailing rate when the documents go to print.
Posted By: David Dickinson

Re: Rate Spread - 12/09/15 07:01 PM

Usually when the rate is not set, it "floats," usually to close.
I'm not sure how it works in your institution, but I don't see this at most clients we work with. I find it hard to believe a borrower has no idea what rate they are going to get until they come to the closing table. Also, "when the rate is set" does not require communication to the borrower. It's when the loan officer sets the rate. It's that simple.

If the loan officer communicates a rate to the borrower, then the rate has been set. If they don't communicate it to the borrower, that doesn't mean the rate hasn't been set. Maybe the loan officer wrote in the file, prepared an underwriting worksheet or simply thought "I think we can do this at X%". The day any of those happen is the day the rate was set. Document it and you're done.
Posted By: rlcarey

Re: Rate Spread - 12/09/15 11:32 PM

It's when the loan officer sets the rate. It's that simple.

Well, maybe and maybe not. In the 80's, mortgage rates floated until the day of closing unless a rate lock agreement was executed. Two days could mean the bank was underwater by several hundred basis points. People have become a little lackadaisical in this stable interest rate environment. When I was working at a bank, a loan officer never had the authority to "lock a rate" unless an official rate lock agreement was executed.

You need to sit down with the head of your ALCO committee and ask them if these so called unofficial rate sets would hold any water if rates jumped 2 percent in the next ten days before you decide when a rate is set on a loan,.
Posted By: David Dickinson

Re: Rate Spread - 12/10/15 03:12 AM

If the rate changes, then you have a new date that the rate was set. My point is that I don't think you can say it's always the date of application, the date loan docs are printed or it's always the date of closing, if we haven't locked the date. It's simply the date the rate was set - whatever that is. And it can be a different date for every loan.
Posted By: Dan Persfull

Re: Rate Spread - 12/11/15 09:07 PM

Where there is no formal rate lock agreement then for us the date is always the date the loan documents are prepared. That is the date the rate is set for the final time from the rate sheet that is in effect for that day.
Posted By: David Dickinson

Re: Rate Spread - 12/11/15 09:59 PM

I agree in most cases Dan, but my point is it could be a day or 2 earlier. If the loan officer said "we're going to do this at X% on the 1st and the docs are prepared on the 3rd, the "date the rate was set" would be the 1st, not the 3rd.