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Actual prices may differ from posted prices at two critical points in the loan origination process: the point where a price is quoted to a shopping borrower, and the point where the price is finalized or “locked.”

PRICE QUOTES TO SHOPPERS: The prices quoted to shopping borrowers are often used to select a loan officer. In many such cases, the shopper selects not the loan officer with the best posted price but the loan officer who is the biggest liar. The temptation to “low-ball” quoted prices is difficult for many loan officers to resist.

They can’t be held to the price quote because prices are not final until they are locked, by which time the market will have changed. Lenders post new prices every day, and sometimes within the day.

Prices depend on numerous features of the loan transaction, including credit score, ratio of loan balance to property value, type of dwelling, and type of occupancy. The loan officer looking to land a client, who is asked for a price quote by an impatient shopper who doesn’t volunteer this information, will often assume the best: that all the loan features are such as to justify the lowest possible price quote. If this assumption turns out to be wrong, which is more often the case than not, the quoted price is too low and will have to be revised. By the time that happens, however, posted prices will change, wiping out evidence of the deception while providing the loan officer with a way to explain the price change.

To protect themselves against this ploy, the shopping borrower must have access to the prices posted on the loan officer’s computer, and must make sure that all the transaction features that affect the price have been properly entered. Don’t expect this to be easy; if it were easy, my job would be done with the completion of these articles. The loan officer certification I have under development will require loan officers to make this process easy for borrowers.

LOCKING THE PRICE: At the point where the mortgage price is locked, a home purchaser with a scheduled closing date may be fully committed, which provides a second temptation for the loan officer to cheat — this time by locking a price above the posted price. The protection against this abuse is the same as the protection against low-balling: The borrower must have direct access to the posted price.

Jack Guttentag is professor emeritus of finance at the Wharton School of the University of Pennsylvania.

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