32 Rate Locks and the Loan Commitments Pipeline

A Rate Lock is a lender's promise to hold a certain interest rate for the borrower, usually for a specified period of time and fee, while the loan application is being processed.

Rate locks are commonly granted to borrowers when they apply for a mortgage loan and carry a term of 30, 60, or 90 days. In Oracle Funds Transfer Pricing, these loan commitments (which are not yet on the balance sheet) are stored in the FSI_D_LOAN_COMMITMENTS table, separate from loans that are already funded. These loan commitments can be Transfer Priced using implied forward rates, which correspond to the assumed loan start date (end of commitment period). This capability allows the treasury to “lock-in” a loan-funding rate at a point in time before the actual loan funding. For more information on using the Forward Rates option, see the Transfer Pricing Process.

• Rate Lock Options
  Many times, lenders also offer a one-time option for borrowers to take a lower rate if market rates drop during the commitment period.
• Transfer Price using Forward Rates and Calculate Rate Lock Option Costs
  The Standard FTP Process provides setup options that allow you to Transfer Price Data in the Loan Commitments table using Forward Rates and calculate the Related Rate Lock option costs. To do this, please select the Loan Commitment table under Source Selection.
• Rate Management
  As shown in the TP Process, the Rate Lock Option Cost calculation requires two inputs both of which come from the Rate Management > Interest Rates page.
• Implied Forward Rates Output
  Users have the option to output the implied forward rates to an Audit Table if needed for validating the Transfer Rate result. To support the validation requirement, the FTP engine (optionally) writes the forward rates to an Audit table - FSI_O_FTP_IMP_FWD_RATES_AUDIT. The option to write implied Forward Rates is available in the Standard TP Process on the Audit block.
• Transfer Pricing Future Dated Instruments (Loan Commitments)
  The base FTP rate quoted on the Commitment Start date is calculated using the current Forward Rates corresponding to the tenor of the Rate Lock period requested and the loan period/payment frequency based on the TP method selected. If an instrument record has a commit_start_date <= as_of_date and origination_date > as_of_date, then FTP will generate implied forward rates based on the commit_start_date spot IRC curve.
• Execution and Results
  You can execute the TP Process to calculate Forward Rates and Rate Lock Option Costs by selecting the process in the summary screen and then click Run.