Phone calls can begin only a day after veterans close on VA-guaranteed home loans. Brokers claim they can offer an even lower interest rate, or a better strategy for refinancing, that will cut mortgage payments even more.
The practice is called serial refinancing, or home loan churning, and the goal is to generate profits for lenders. The side effects often are more home debt on veterans and more financial risks for their families.
The number of lenders aggressively targeting veterans with misleading refinance schemes has fallen to less than a dozen, said Jeffrey London, director of loan guaranty service at the Department of Veterans Affair.
However, he told a House subcommittee this month, VA is committed to better protecting veterans against remaining bad actors. Draft regulations to strengthen safeguards and raise awareness will be published soon, he promised.
Industry witnesses suggested stronger oversight can't come too soon for veterans and for investors in government-secured mortgages. Sounding the loudest alarm at the hearing was Michael R. Bright, chief operating officer for the Government National Mortgage Association. More commonly called Ginnie Mae, the agency provides government guarantees behind VA and other federal home loans.
"I believe 2018 will be a critical year" on the churning issue, Bright told the House veteran affairs' economic opportunity subcommittee. "If we cannot get a handle on this behavior, abusive lending will continue to infect our market and our program."
Abusive lending that targets veterans is alarming on so many levels, Bright said. He called loan churn "borderline predatory" behavior and "reminiscent of lending practices used by many in the industry prior to the 2008 financial crisis."
The sales pitch made to homeowners these days, with interest rates rising, typically involves variable interest rate loans or refinancing schemes that lower mortgage payments but raise loan amounts by rolling in new settlement fees or adding years to loan payoff periods. Texas Rep. Beto O'Rourke, ranking Democrat on the panel, urged VA to require lenders to present in large type on Page One of loan documents the financial consequences of refinancing.
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