There used to be a time when you could send in an application to hold a rate with a lender, and then cancel that application without too many repercussions.
Not these days.
Lenders have been intently focusing on an all-important statistic called the “funding ratio.”
The funding ratio =
Mortgage applications submitted to a lender / Mortgage applications closed with that lender
It is a percentage that tells lenders roughly how efficient a mortgage planner is.
For example, if an agent submits 10 applications to a lender and only three of them close, that planner’s funding ratio is 30%. That’s enough to get the agent “cut off’” at some lenders.
The reason is that cancellations and declines cost the lender money. The costs include:
Hedging expense (the lender’s cost of holding your rate)
Underwriting time (salaries)
Support staff time (salaries)
Overhead (the portion allocated to the application)
Years ago when per-deal profits were wider it wasn’t as much of an issue. With today’s intense competition and tight margins, it is.
For these reasons, mortgage planners must be more and more careful when they send applications to lenders. Agents must be confident that:
The client’s application will be approved
The client’s pre-approval will turn into a “live” deal
The borrower will close after the mortgage is approved
As a borrower, this means you should be sure of your decision when you choose a particular lender. You’ll want to do all your shopping beforehand, and be happy with a lender’s rates and terms at the time you apply.
In general, it can be difficult for a mortgage professional to move an application from lender to lender without good reason. What constitutes a good reason? One example is when a new product comes out that offers significantly better features (or a much lower rate) than what you were approved for.
On the other hand, assuming the agent got you the best deal at the time of application, made the most suitable recommendation, and fully explained the product, then a five basis points rate drop somewhere else is usually not a good enough reason to switch lenders.
Mortgage planners who make a habit of moving or cancelling applications are taking chances with their careers. Best case, they annoy their lenders. Worst case, they are blocked from dealing with certain lenders–and that curtails lending options, which hurts all of that agent’s future customers.
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