Mortgage lender agrees to honor lock-in rates
DOBI helps hundreds of borrowers get the loan they applied for

TRENTON - A Princeton-based mortgage lender has agreed to honor the interest rates promised to some 300 borrowers after the Department of Banking and Insurance began investigating complaints that the "lock-in" agreements were not being met, Banking and Insurance Commissioner Holly C. Bakke announced yesterday.

Royal Mortgage Corporation, which was acquired recently by Empire Equity, will honor the lower interest rates for refinancings it had quoted to 10 consumers who filed complaints against the company, and will honor the 60-day lock-ins for loans already in its pipeline.

"A mortgage loan is not something people undertake without carefully considering the terms of the loan, including the payments they can afford to make," Commissioner Bakke said. "Therefore, homeowners have a reasonable expectation that the rate quoted is the rate they will get. I commend my staff for their hard work on behalf of New Jersey consumers."

Complaints about lost lock-in rates emerged late last month, when it became the topic of a July 30 call to "Ask the Commissioner," the radio program that airs on New Jersey 101.5. A caller had asked Commissioner Bakke about the issue.

All 10 complaints were filed with the Department during the week of Aug. 4, citing Royal's inability to close the loans before the lock-ins expired. Investigators were dispatched to Royal's corporate offices on Aug. 14 to review the paperwork associated with those 10 loan agreements.

In a related matter, the Department issued a Bulletin today to all New Jersey licensed mortgage lenders urging them to adhere to their lock-in agreements or stop accepting new applications until they assess whether they can handle the volume adequately.

The Banking Division's Consumer Services Bureau had investigated about a dozen complaints consumers filed against Royal Mortgage a year ago, all involving Royal's failure to honor their lock-in commitments. All of those complaints were resolved by issuing loans within the terms of the original lock-in rates.

"We believe that Royal officials were aware of the problem, yet they took no action to correct it," said H. Robert Tillman, director of the Division of Banking. "We believed it was our duty to investigate it and seek a favorable resolution on behalf of consumers."

The Department found that due to Royal's marketing strategy of accepting loan applications via the Internet, it did not have enough staff to handle the volume of applications that came in, nor were they able to answer telephone calls from consumers who were questioning the status of those loan applications.

Since then, Royal has been acquired by Empire Equity of New York, a large national mortgage lender, which has a greater loan processing capability. Royal will become a regional office for the larger mortgage company.

Under New Jersey law, if consumers have lock-ins that expire, they have the right to extend the lock-in for up to 14 days. If they choose to extend the lock-in, the lender has the option of closing the loan at or below that rate, or closing the loan above that rate and refunding the lock-in fee. If the lender elects to close the loan at a higher rate, he cannot earn any more profit that he would have under the original rate.

In the case with Royal, the lender has agreed to go beyond the requirements of New Jersey law and extend the lock-in rates for substantially all of the New Jersey loans in its pipeline until they are closed.

"We certainly think this is the right thing to do under the circumstances, and we are pleased that Royal has joined us in protecting New Jersey consumers," Bakke said. "It is our hope that any other mortgage lenders who find themselves backlogged due to the high volume of loan applications will take a similar course of action."