At what point does a rate bait and switch become fraud?
I’m currently in the process of buying a house. Once the price was negotiated and agreed upon, I solicited quotes from various mortgage brokers. One offered a lower rate than the others, so we picked them. I signed a loan agreement, submitted all my documents, and last week signed a rate lock agreement.
Yesterday (two weeks out from our targeted close date), the lender called to inform me that they could no longer offer the rate on the lock agreement, and offered a much worse deal instead. There were no new revelations in the intervening time. The reason they cited was that I’ve only had my current job for three months, but they’ve known that since I began the process, and certainly they knew that before I signed the lock agreement.
Now I have to decide whether to take the crappier loan, or to go back and find another lender and risk not being able to close on time. I might lose the house.
This seems like a clear case of bait and switch to me. I picked these guys because they offered a certain rate, and once I was far enough along to make it hard to go with someone else, they switched it out.
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Is it legal?
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Do rate lock agreements have implicit ‘out’ clauses?
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Do I have any recourse?
This answer assumes you are in the U.S.
This may or may not be legal. I can’t tell without looking at all the documents.
Your only practical recourse at this time is to file a complaint and move on. The place to file a complaint is with the Consumer Finance Protection Bureau. On this page https://help.consumerfinance.gov/app/mortgage/ask
In the future, you should always run two mortgage applications simultaneously with two different brokers/lenders. This process will cost you a few hundred dollars extra, so it may not be worth it for small mortgages. Mortgage companies know that you are under pressure when you are buying a house. You need options to negotiate.
One good resource is Aimloan.com. You can get a good faith estimate for a loan there without divulging any personal information. Use that to comparison shop for other loans. I’ve done two mortgages with them. The second time they were just a backup, but my first choice lender would not honor the rate lock. So, I’ve been in your situation.