Pennymac locks in mortgage rates for up to 90 days 

Based in California Pennymac launched a product that can freeze mortgage rates for up to 90 days, in an effort to attract more borrowers to the market in a volatile rate environment.

Dubbed “Lock & Shop,” the product, launched in mid-June, has two terms: the 75-day lock, which gives borrowers 45 days to shop and 30 days to complete the contract; or the 90-day foreclosure, giving customers 60 days to find a home and 30 days to complete the contract.

The product also allows for a one-time drop if rates fall. It is available for all loan types except jumbo.

“As we know, the Federal Reserve indicated that they were going to keep raising the rates, so we could lock in the loan with today’s rate for up to 90 days,” said Scott Bridges, senior managing director of direct consumer lending. “It could prevent you from not buying the house you wanted or having to buy a cheaper house because your payment would be higher with a higher rate.”

Pennymac’s product allows borrowers to extend their lock-in period at a discounted rate if they can’t find a home. Bridges said there are no upfront fees, but the lender requires pre-approval to ensure borrowers qualify for a mortgage – in which case the lender gives 50 basis points on the fee Closing.

“There’s no point in doing a Lock & Shop if your purchase is fairly imminent, but we’re finding it to be a very popular product with our borrowers,” Bridges said. Pennymac has locked down more than 100 apps with the product since mid-June.

Pennymac is the latest mortgage lender to freeze rates for borrowers. End of June, fintech startup Tom too announced a “Lock & Shop” product, allowing borrowers to lock in a mortgage rate for up to 120 days, about twice as long as most lenders.

The product does not require a property address to secure a mortgage rate. Founded in 2020 by former Zillow executives Greg Schwartz and Carey Armstrong, the fintech startup is focused on the $1.6 trillion buy mortgage industry.

“Consumers had seen so many reports about a threat of recession, inflation and rising interest rates that they got stuck,” said Tomo co-founder and CEO Greg Schwartz. “They say, ‘I’m afraid that if I start shopping now, by the time I find a place to live — because inventory is still limited, I still have to make several offers — and by the time I find a place , I may have much less purchasing power.

Since January, mortgage rates have risen rapidly due to high inflation and the Federal Reserve’s plan to tighten monetary policy. And that has put pressure on mortgage lenders with extended lock-up periods.

When rates rise, lenders’ capital markets teams struggle to sell secured loans at a lower rate as investors demand higher returns. This often forces lenders to sell at par or suffer a loss.

But Pennymac and Tomo said they can offer extended lock-up periods as their capital markets teams hedge transactions (so they can avoid losses when selling loans at the current mortgage rate in the secondary market at the future) and companies have a solid balance of sheets.

Last summer, Tomo launched his platform after raising $70 million in seed capital and achieve “unicorn” status. In 2022, Tomo said he raised an additional $40 million in a Series A round led by SVB Capitalwhich more than doubled the company’s valuation to $640 million.

Tomo, however, is not immune to market volatility. The digital mortgage lender has laid off nearly a third of its workforce at the end of May. The company does not disclose its origination volume.

Pennymac declared $490 million in cash as of March 31, according to Security and Exchange Commission (DRY).

The company posted pretax net income of $234.5 million in the first quarter, essentially unchanged from the prior quarter. Pennymac plans to lay off 207 employees in June and July following a request to cut more than 230 employees in March.