Under pressure from a prominent lawmaker, the Government National Mortgage Association is taking action to address the churning of home loans to veterans.
Ginnie Mae last year identified rapid refinance and loan churning on mortgages that are guaranteed by the Department of Veterans Affairs.
In addition to creating downward pressure on Ginnie Mae securities, the action are increasing borrowing costs and outstanding loan balances for veterans.
The Washington-based company changed its program rules late last year to address the issue, which led many lenders to stop the practice. A memorandum to participating lender required that as of February 2017, six payments must be made on the mortgage being paid off before a streamlined refinance loan could be included in Ginnie Mae mortgage-backed securities.
But the initial period has elapsed, and an increase in streamlined refinances making their way into Ginnie pools has recently been noted.
“Unfortunately, some lenders have actively worked to evade those new rules by changing their tactics to continue questionable lending practices,” Ginnie said in a statement Thursday.
Other tactics include fully underwriting the loans to avoid streamlined refinances within a couple of months after closing on the prior loan; marketing cashouts, which are excluded from the streamlined refinances limitations; and refinancing from fixed-rate loans to adjustable-rate mortgages.
In addition, lenders are soliciting borrowers for a refinance with the promise that they can skip a month of mortgage payments and offering to return the borrowers’ escrows.
“We have also found suspicious loan characteristics on some fast refinance loans in our pools, including examples of home values or credit scores that increase substantially over a period of just a couple of months,” Ginnie said. “These practices by a few issuers appear designed to market products that evade Ginnie Mae and VA program rules, and, in our view, may not be designed to help veteran homeowners.”
The practices by the lenders got the attention of Sen. Elizabeth Warren (D-Massachusetts), who wrote a letter last week to the government-owned corporation.
So Ginnie and VA
have formed a lender abuse task force to continue and intensify its work on this issue.
In a letter to Warren, who is the ranking member on the
Senate Subcommittee on Financial Institutions and Consumer Protection, Ginnie Mae Acting President and Chief Operations Officer Michael R. Bright said she is right to be concerned. He thanked Warren for bringing the issue to the public’s attention.
“Collectively, Ginnie Mae’s internal research and work with the VA, along with the CFPB’s report, paint a picture of a market for VA loans that is somewhat saturated with lenders and brokers making dozens of calls and sending dozens of letters to veterans attempting to get these homeowners to refinance their mortgages,” the letter stated. “When a refinance occurs, the lender collects refinance fees, but the borrower may be left no better off and, in some cases, worse off in the long-term.”
