Mortgage

VA implements new policy to protect homeowners from predatory lending

Protects veterans from loan churning

The U.S. Department of Veterans Affairs announced Friday it is implementing a new policy that will help protect veterans from predatory lending practices.

The VA announced it is implementing the May 2018 Economic Growth, Regulatory Relief and Consumer Protection Act to protect veterans from loan churning when obtaining a VA guaranteed refinance loan.

The VA explained the act will protect veterans and service members from the dangers associated with repeatedly refinancing their home loans, requiring, among other things, the seasoning of the original loan and a recoupment period for fees, closing costs and expenses related to the refinance.

“We want to ensure veterans have the informed ability to take advantage of economic opportunities and make sound decisions that enable them to prosper when using their benefits,” Acting VA Secretary Peter O’Rourke said. “This is yet another tool that will help Veterans meet their personal goals.”

The new policy will also require a specified interest rate decrease and for protections surrounding loan-to-value ratios. If a refinance does not meet these requirements, the VA will not guarantee the loan.

This is just the latest step in the recent crackdown against predatory lending. The VA recently implemented a policy where lenders are required to provide borrowers a comparison of their existing VA-backed home loan to the proposed one when refinancing to ensure borrowers are set up for success. This is also referred to as a recoupment or break-even analysis, which helps Veteran borrowers clearly understand the costs of refinancing, the monthly payment savings, and the overall impact on their finances.

In the second half of last year, Ginnie Mae announced that it was launching an investigation into mortgage lenders that were aggressively targeting service members and military veterans for quick and potentially risky refinances of their mortgages.

Then, early this year, Ginnie Mae announced that it was warning a “small number” of lenders to get their VA refinance programs under control, or they will no longer be allowed to participate in Ginnie Mae multi-issuer mortgage-backed securities.

Since then, Ginnie Mae has booted several VA lenders from its programs.

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