The United States is investigating lenders who are allegedly pressuring veterans into mortgage refinances they don’t need.
Ginnie May, a government-owned corporation that exists to make mortgages more affordable, is conducting the probe. Ginnie Mae guarantees repayment on $2 trillion in mortgage bonds, even if borrowers default on their loans.
Ginnie Mae is concerned that some lenders are improperly pushing veterans to refinance loans that have been wrapped into Ginnie Mae securities. Lenders are encouraging consumers to refinance loans continually during a short period of time, a practice known as churning, which generates higher fees for lenders and may leave veterans with larger loan balances.
Ginnie Mae and the Department of Veterans Affairs has created a task force to address churning and other abusive practices by lenders. The agencies could decide to ban lenders from Ginnie Mae programs or impose restrictions on refinances.
Banks that make loans through Veterans Affairs offer terms that are not available to most borrowers, which include no requirement for down payments and adding closing costs to loan balances so that veterans do not have to pay them at the time of sale. But these lenders do not have an obligation to ensure that borrowers experience any benefit when they refinance, which makes these loans prime targets for churning.
As Senator Elizabeth Warren stated recently: “I am glad that Ginnie Mae and the VA have created the Lender Abuse Task Force and have committed to working with me to crack down on lenders who are exploiting veterans in order to line their own pockets. These abusive practices are wrong, and lenders who engage in them shouldn’t benefit from any taxpayer backing.”