Two weeks ago, Ginnie Mae warned lenders would be disciplined for aggressively targeting and pressuring veterans to refinance their home loans. Later this week, the government corporation plans to take action.
Ginnie Mae, formally known as the Government National Mortgage Association, amended its guidelines at the end of January, stating it would be looking at lenders whose actions appear to be out-of-step with other lenders without a logical reason. The corporation will send notices to lenders that it has deemed “bad actors” as early as Thursday, said Ginnie Mae Executive Vice President Michael Bright.
“We need to take these lenders who appear to be operating in a way that doesn’t make sense and put them into this penalty box,” Bright said. “We are actively taking that step now.”
Ginnie Mae announced an investigation last year into the Department of Veterans Affairs home loan guarantee program, when the corporation discovered lenders were improperly pressuring veterans to repeatedly refinance loans. The occurrence, known as “loan-churning,” often creates expensive fees for veterans, raises rates and has little or no benefit.
The VA has remained adamant that it’s not a systemic problem. Less than 10 percent of lenders act in this way, said Jeffrey London, director of the VA loan guaranty service.
But in addition to harming veterans, loan-churning has the potential to threaten the VA home loan guarantee program and the overall mortgage market, Bright said.
The VA program offers a low-cost mortgage option to veterans, and most of the loans are financed through Ginnie Mae mortgage-backed securities. Companies who provide capital for the program are increasingly weary of lenders taking advantage of veterans who use it, Bright said.
“My job is to make sure capital is there to support the VA program, and I am very worried that it’s at risk,” he said. “People who are backing this program are mad at how these loans are performing. When we actually do this, my hope is those people who were skeptical see that Ginnie Mae really means it, and that they come back to the program. If we don’t do this, the program derails.”
London told lawmakers last month that the VA will soon propose rule changes to its home loan guarantee program to prevent predatory lenders from targeting veterans. The regulations could include a requirement for a lender’s refinancing proposal to meet a certain tangible net benefit for veterans, as the Federal Housing Administration already compels lenders to prove before refinancing loans that it insures.
But the process to implement new regulations could be lengthy. The VA must adhere to the federal rulemaking process, which includes a public comment period. London didn’t tell lawmakers an expected timeline and said only the VA would propose new regulations sometime in 2018.
Bright described the issue as “critical” and said Ginnie Mae felt it necessary to take action now.
“I really just want to solve this thing,” he said. “It’s threatening to the veterans who get duped and annoying to veterans in general who get solicitations.”
Ginnie Mae is expected to make an announcement about penalized lenders later this week.
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