Bank Errors Make Lowest Interest Rates Harder to Land Many people who are looking to buy a new home or refinance lately are experiencing sticker shock when they see how much higher the interest rate they're getting is than they expected.

Interest rates on 30-year mortgages are still cheap by historical standards, averaging 4%, up slightly from a record low last month. The time it takes to process mortgage applications also is increasing as applications surged. A delay doesn't necessarily mean that consumers are getting a higher rate, but according to one expert, it may mean that your loan is more likely to be rejected.

Consumers are being urged to get their paperwork in order before submitting an application in order to minimize the potential for processing hiccups. Even then, there is no guarantee that the application will be approved, as creditworthiness standards have been ratcheted up in the wake of the housing market's collapse.

"There are no rules about this to my knowledge," Jack Guttentag, a Wharton professor who edits the Mortgage Professor blog, wrote in an email. "If the lock expires, unless the lender acknowledges responsibility for not getting it done, the lock will be extended at the higher of the lock price and the current price.

"This represents a change for consumers, who before the financial crisis were able to lock in interest rates on the spot. The bursting of the real estate bubble put an end to that practice. Now, the lock rate can differ from the final rate if market conditions change or there is a change in a borrower's credit score, Guttentag points out.

But lenders are also partly to blame. "The problem is that underwriting requirements have become tough and rigid, appraisals have deteriorated in quality and have a pronounced downward bias," Guttentag wrote. "Loans are being rejected as a result, and many loans that do go through are priced higher than the best prices available, which are the ones quoted."

Banks Were Unprepared, Understaffed

According to a Sept. 2 Bloomberg article, the surge in applications caught the industry flat-footed. It came after thousands of mortgage workers were laid off as demand for refinancing cooled. For instance, Wells Fargo (WFC) announced plans in April to cut 4,500 jobs from its mortgage business. Meanwhile, Bank of America (BAC) said it would slash 1,500 employees from its mortgage unit, along with 2,000 contractors.

There's no quick fix for this staffing problem: "Banks are experiencing capacity issues, as they are having to hire compliance staff and as a result, oftentimes are unable to hire production staff," according to a statement the Mortgage Bankers Association provided for this story.

The mortgage services industry is in the sights of the Consumer Financial Protection Bureau. Raj Date, special advisor to the secretary of the Treasury on the CFPB, said on Oct. 13 that the agency would examine reports of pervasive and profound consumer protection problems. A CFPB official could not be reached for comment on this story.

The surge in mortgage applications shows few signs of easing. Data from the Mortgage Bankers Association showed that for the week ending Nov. 2, applications increased 0.2% from the previous week. Most of that volume (77%) came from refinancings. Banks are struggling to keep up with demand, which is forcing some to "adjust rates to slow their pipelines and widen their margins," said LendingTree Chairman and CEO Doug Lebda in a press release.

Fool contributor Jonathan Berr has no position in any stock listed in this story. The Motley Fool owns shares of Wells Fargo and Bank of America.

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The amount of cash you can get depends on your age, the type of reverse mortgage you select, the appraised value of your home, current interest rates, and where you live. In general, the most cash goes to the oldest borrowers living in the homes of greatest value at a time when interest rates are low.

July 16 2013 at 12:49 PM Report abuse rate up rate down Reply

banksters DON'T lend at these lower rates, its against their fk'm harder creed!

December 26 2011 at 2:10 PM Report abuse rate up rate down Reply
John M

Watch out for Bank of America, the bank of liars, they will cheat you on your loan . When Bank of America gets caught for all this fraud, the feds will close it down and throw some employees in prison.

November 09 2011 at 9:53 AM Report abuse rate up rate down Reply

It's bate and switch. I have an average credit score of well over 800. I have 20% down. I requested a loan well within my means. I have a great employment record. Not a dent anywhere. Yet, the bank wanted a letter from my employer guaranteeing me 3 years of employment into the future at my current salary or greater. Since I couldn't provide them with such a letter (and who in the world can?) the bank "generously" offered me an interest rate about twice above their advertised rate.

It's all a joke, folks. You CAN"T get a loan at these low interest rates. But it's like the car ads where they name a miraculously low price and then in tiny print at the bottom of the ad there is a note that says "One in stock at this price." Which could mean there is one in stock at this price, in the entire world. You CAN"T get that car at that price. Not gonna happen.

Nothing new here. The only difference is that consumers are just now noticing these things, and we just now have the ability to share our stories.And the truth is we all have choices.

Do NOT sign anything you don't like or you don't understand! It's that simple!

November 08 2011 at 9:29 PM Report abuse rate up rate down Reply

How many ways can they create to suck the blood out of us. There truly is little time for all of us to wake up to the theft of our country. For the first time in our history we are a completely duel economy nation. The 1% have succeeded in seperating their economy from the rest of us. Where we are still deep in this DEPRESSION, they were never really even slowed. They are the economy of Wall Street and we are the economy of jobs and morgages.

There is not one of you who claims any loyalty to this country who can justify keeping their money in large corporate banks. They conspired to do this and you want to reward them? Bank with small local banks and credit unions. Keep your money working in your community.

November 08 2011 at 12:36 AM Report abuse +2 rate up rate down Reply

EVAN. You're here or did I just miss you?

November 07 2011 at 9:25 PM Report abuse -2 rate up rate down Reply

It's time for the evan poem..........he loves it so.

I'm evan / idiot / liar / mess.
For the record I must confess.
Forget the lie of change and hope.
I am just Obama's dope.

November 07 2011 at 8:26 PM Report abuse rate up rate down Reply
1 reply to savemycountry911's comment

thats funny. can you do one on bill clinton, obama and jimmy carter?

November 07 2011 at 11:03 PM Report abuse +1 rate up rate down Reply

Giuliani says the protest thugs should occupy a job. LOL. I love Giuliani. He should be president.

November 07 2011 at 8:15 PM Report abuse -5 rate up rate down Reply
1 reply to savemycountry911's comment

that didnt rhyme

November 07 2011 at 11:04 PM Report abuse rate up rate down Reply

title should read "Bank Robbery from Within"

November 07 2011 at 7:24 PM Report abuse +3 rate up rate down Reply
M Washam

There is really NOTHING these banks can do to redeem themselves in my eyes. they have lost ALL trust as far as I am concerned and the douche bags who say STUPID things like "people just want a free ride" need to be slapped back into reality. I have NO RESPECT for anyone who supports any of these thug banks, or the politicians who keep selling out to them. The bottom line is this - if you want a shot at a fair loan go to your local community bank or credit union. Now I just can't wait for the responses I get from the paid trolls and teathuglicans who are too dumb to realize that the system they worship is fleecing them like sheep.

November 07 2011 at 7:22 PM Report abuse +3 rate up rate down Reply
1 reply to M Washam's comment

Such bitterness. Didn't get your welfare check yet?

November 07 2011 at 8:21 PM Report abuse -5 rate up rate down Reply