Ginnie Mae’s battle against a number of mortgage lenders that are aggressively targeting servicemembers and military veterans for quick and potentially risky refinances of their mortgages just went to another level.
Earlier this year, Ginnie Mae threatened a small number of lenders with expulsion from its primary mortgage bond program if the lenders do not address their abnormally high prepayment speeds.
Now, Ginnie Mae has reportedly followed through on that threat and booted NewDay USA and Nations Lending from its primary mortgage bond program, according to a report from Bloomberg.
The threat came after months of increasing attention into “loan churning,” the practice of convincing an existing borrower to refinance their mortgage.
It began with an investigation into Department of Veterans Affairs lending. Then, Ginnie Mae and the VA launched a task force to determine what steps to take to address the issue, and finally, Ginnie Mae increased its oversight over VA refinances.
Then came the threat to prohibit certain lenders from participating in Ginnie Mae’s multi-issuer pools.
Now, Ginnie Mae has acted on the threat.
NewDay USA and Nations Lending Corp. have been restricted effective this week from issuing Ginnie Mae bonds that are intermingled with loans from other lenders, according to a person familiar with the matter.
Under the restrictions, NewDay and Nations Lending can still issue Ginnie Mae-backed securities but only in “custom pools” that aren’t mixed with loans from other lenders. Those bespoke securities are likely to get worse prices from bond investors.
When asked about the restrictions, Ginnie Mae did not confirm the identities of the lenders in question, but did say that action has been taken.
“We are continuing to take steps to ensure that pools with prepayment speeds out of line with market norms are not co-mingled into our multi-issuer security,” Michael Bright, Ginnie Mae’s executive vice president and chief operating officer, said in a statement provided to HousingWire.
“This ensures the integrity of our bonds, and strengthens the support they provide to veterans and other homebuyers,” Bright added. “This enforcement of the program falls directly within Ginnie Mae’s mission and ongoing monitoring is inherent in the business of Ginnie Mae.”
This all started last year as an investigation into loan churning, which was spurred by a letter from Sen. Elizabeth Warren, D-Mass., who cited a report from the Consumer Financial Protection Bureau about complaints received from veterans about VA mortgage refinancing.
Warren’s letter claimed that there may be lenders “aggressively and misleadingly marketing the refinancing of mortgages backed by the Department of Veterans Affairs, generating fees for themselves at the expense of veterans and American taxpayers.”
Ginnie Mae and the VA investigated the issue, which eventually led to the actions being taken against NewDay and Nations Lending.
In a lengthy statement, NewDay denied that it is involved in loan churning and said that it has offered recommendations to both Ginnie Mae and the VA that “could virtually end loan churning.”
Included in those suggestions is a requirement that there be a “tangible” benefit to a VA refinance, a requirement also floated in legislation proposed earlier this year by Warren, Sen. Thom Tillis, R-N.C., and 10 other senators.
According to NewDay, that suggestion has “sadly” not been implemented by Ginnie Mae.
“NewDay is proud of its established track record in providing veterans access to their VA home loan benefits. NewDay will continue to issue Ginnie Mae II MBS Custom Pools,” the company said in a statement.
“Our record is absolutely clear - NewDay does not churn veteran loans. We have been an outspoken supporter of measures to end the shameful practice of loan churning,” NewDay added.
“Policy changes recommended by Ginnie Mae will do virtually nothing to stop the unprincipled practice of veteran loan churning but in all likelihood, will force the elimination of much needed benefits and financial services for tens of thousands of veterans – especially those veterans struggling with poor credit,” NewDay continued.
“NewDay has always complied with every requirement of the MBS Guide. Our loan delinquency rate is less than one percent, which is far below the five percent rate allowed by the MBS Guide,” NewDay concluded. “NewDay’s loan default rates are low due to our state-of-the-art predictive analytics and a disciplined underwriting process that all work to safeguard our loan portfolio.”
Nations Lending also responded to Ginnie Mae’s move.
Again, from Bloomberg:
Nations Lending Chief Administrative Officer Cheryl Lieber said in a statement that the company recently underwent a routine examination by the Department of Veterans Affairs without a problem and that the company doesn’t have issues with its VA loan program. She said the discussion with Ginnie Mae pertain to the performance of loans in a particular pool and denied that they pertain to Nations’ origination of VA-backed mortgages.
“We are confident that the matter will be successfully resolved in the very near future,” Lieber said.