With mortgage rates steadily heading north during the summer, funding delays and busted rate locks caused much consumer consternation.
Several state regulators have gotten more complaints from consumers whose rate locks expired before they could obtain their mortgages.
Some potential borrowers share the blame, because they decided on short locks, said Chuck Cross, the acting director and enforcement chief of the division of consumer services in Washington State's Department of Financial Institutions.
After complaints started arriving in early August, the department issued an alert saying two mortgage companies had had trouble with meeting lock dates.
One of them was Capitol Commerce Mortgage Co. of Sacramento, which was closing its doors at the time. The other, MortgageDaily.com later reported, was Fidelity Mortgage Corp. of Tucson, a private company unrelated to the Boston fund firm.
Scott Brittenham, Fidelity Mortgage's president, said that in late June and July it found itself unable to fund loans with 30-day locks before they expired. Some of the smaller number of borrowers who had chosen 60-day locks were also affected, he said.
Unprecedented volume led to similar delays industrywide. Fidelity Mortgage, which originated $400 million of loans last year through its retail branches in Washington, Arizona, California, and Nevada, expects to fund between $600 million to $750 million this year, Mr. Brittenham said.
Massive delays in internal activities like document processing and external activities like title searches and insurance could not have been avoided, Mr. Brittenham said. "Appraisals at one point were backed up at least a month," he said.
But "if the lock had expired and rates were lower, I don't think they would say, 'That's OK; I'll go ahead and do the loan with you guys anyway' " at the lock rate, he observed.
Washington regulators noted that Fidelity Mortgage had clearly disclosed that the rate locks would not be extended if it could not fund the loans in time.
"You'd be hard put to find a consumer who can say they didn't understand that," Mr. Brittenham said. "It is in bold print right above the signature."
The Washington department feels satisfied that the company did nothing wrong, Mr. Cross said. Arizona is looking into the situation, he said.
Some lenders will "guarantee" locks - offering a rate slightly below the market rate if they fail to fund in time - or extend locks if delays occur. Fidelity has extended locks in the past, but this summer's rate move was too extreme, Mr. Brittenham said.
"We would extend provided there was not dramatic change in the market," he said. Fidelity refunded up-front fees and offered borrowers better than going market rates, he said.
A. William Schenck 3d, Pennsylvania's secretary of banking and a former chairman and chief executive officer of Fleet Mortgage Group Inc., wrote to mortgage bankers and brokers to remind them that Pennsylvania law prohibits brokers from offering rate locks.
The growing number of complaints about broken rate locks is typical for the end of a boom in the mortgage business, he said in an interview last week. "It's not unusual during a period of rising interest rates for this to happen."
