Lenders Face Heavy Punishment Amid VA ‘Loan Churn’ Concerns
Government officials have withdrawn at least two lenders from one of the most favorable funding programs for VA loans in an attempt to combat the practice of “”churning out loans“which would have been hurt veterans and put benefits at risk.
NewDay USA has been restricted, at least temporarily, from money pools that are open to other lenders through Ginnie mae, a Crown corporation that oversees the process of ensuring the success of the guarantee of government mortgage-backed securities. Ginnie Mae took similar action this week against Nations Lending, according to Bloomberg.com.
NewDay USA VA loans will still be placed in specialized loan pools under Ginnie Mae, but will not be mixed with other lenders, so terms will not be as good for borrowers. So, according to a mortgage banking industry source, the action could limit NewDay USA’s ability to extend loans to veterans with low credit ratings; Nations Lending is experiencing a similar fate, according to Bloomberg.
“Our record is absolutely clear. NewDay does not give loans to veterans, ”the company said in a statement to the Military Times. “We have been a strong supporter of measures to end the shameful practice of loan churning. “
A response was not immediately available from Nations Lending. However, the lender’s executive director made a statement to Bloomberg, noting that the company had recently undergone a routine VA exam and the company had no issues with its VA loan program.
About 99% of VA loans are secured by a Ginnie Mae Mortgage Backed Title and then sold into the secondary mortgage market with full collateral and a credit guarantee from Ginnie Mae, who is also responsible for overseeing their loan program. protection against loss.
The “churn” begins when VA loan users are targeted by a wave of mortgage refinancing solicitations, often shortly after a mortgage loan closes. Some borrowers have been persuaded to refinance their loan several times a year, often with little or no financial benefit. Transaction fees increase the overall loan amount with each refinancing.
These quick refinances take the loan out of Ginnie Mae’s pool, along with the expected return on monthly principal and interest payments. Thus, investors are less willing to pay a higher price for Ginnie Mae bonds. As bond prices fall, borrower interest rates rise.
Ginnie Mae continues to take steps to ensure that loans with above-market refinancing speeds are not entangled in her core programs, said Michael Bright, executive vice president and chief operating officer of Ginnie Mae, in a statement provided to the military. Time. “This ensures the integrity of our relationships and strengthens the support they offer to Veterans and other home buyers.”
“About one in four NewDay customers say they have been rejected by the big banks when they applied for the VA benefits to which they are entitled,” according to the NewDay statement. “When veterans cannot access their VA financial benefits, they are forced to pay much higher credit card interest rates or use extremely high interest payday lenders.”
In February, Ginnie Mae warned nine lenders that they would be removed from the main funding program for VA loans if they did not stop the alleged loan churn practices. No information was available from Ginnie Mae as to whether punitive action had been taken against any of the other seven lenders. Lenders had varying timelines to respond to Ginnie Mae’s initial notification.
Karen has covered military families, quality of life and consumer issues for Military Times for over 30 years, and is co-author of a chapter on media coverage of military families in the book “A Battle Plan for Supporting Military Families “. She previously worked for newspapers in Guam, Norfolk, Jacksonville, Florida and Athens, Georgia.