Lenders would be required to show “material benefit” for VA refinances
Over the last few months, Ginnie Mae and the Department of Veterans Affairs began looking into a segment of mortgage lenders that were aggressively targeting servicemembers and military veterans for quick and potentially risky refinances of their mortgages.
It started with an investigation into “loan churning,” the practice of convincing an existing borrower to refinance their mortgage. Then, Ginnie Mae and the VA launched a task force to determine what steps to take to address the issue, and finally, Ginnie Mae increased its oversight over VA refinances.
But a bipartisan group of senators think both the VA and Ginnie Mae need more legal authority to stamp out the problem entirely.
Earlier this week, a group of 12 senators from both parties, led by Sens. Thom Tillis, R-North Carolina, and Elizabeth Warren, D-Mass., introduced the “Protecting Veterans from Predatory Lending Act of 2018.”
The bill would require lenders to demonstrate a “material benefit” to consumers when refinancing their mortgage.
According to the senators, a “small number” of lenders are “abusing” the VA program by “utilizing misleading advertising tactics” to convince VA borrowers to quickly refinance their mortgages.
Per details provided by Tillis’ office from April 2016 through August 2017, there were more than 1 million VA home loans originated, with nearly half of those being refinances.
According to Tillis’ office, the “vast majority” of those refinanced loans were originated by “good actors,” but more than 40,000 of those loans “may have been subjected to abusive lending practices.”
The bill would bring more protections for veterans to prevent “predatory” lenders targeting them for refinances.
The Protecting Veterans from Predatory Lending Act would establishing the following requirements:
- A lender may only submit a refinance loan for VA insurance if it certifies that all fees associated with the refinance would be recouped through lower monthly payments within three years
- A lender may only receive VA insurance for a refinance loan if the refinance loan has a fixed rate 50 basis points lower than the earlier fixed-rate loan (or 200 basis points lower if the new refinanced loan is an adjustable rate mortgage)
- A lender may only receive VA insurance or get a Ginnie Mae guarantee for a refinance loan if the refinance comes more than six months after the initial loan
The bill also stipulates that Ginnie Mae should provide Congress with a report in one year on liquidity of the Ginnie Mae security.
According to the senators, one side effect of these “predatory refinance practices is that they undermine the value of the Ginnie Mae security, thereby raising costs for every veteran receiving a VA mortgage.”
Ginnie Mae’s report would allow Congress to determine if the bill is having the desired effect on Ginnie Mae securities.
-editors note: this piece is dedicated to the memory of VetJobs founder, Cmdr Ted Dewalt, who passed away last summer. Dewalt was fixated on this rip-off scams, coining the phrase ‘predatory colleges.”