Bloomberg article claims government may further restrict VA cash-out refinancings

Are veterans unnecessarily being put at risk of foreclosure?

In 2018, $41 billion went towards the sale of cash-out VA mortgage refinancing loans.

That's a big enough chunk to led the government to question whether or not these loans may end up leaving thousands of veterans vulnerable to financial destitution, should the economy slowdown, as some expect.

In fact, the uptick in veteran refinancing has become so substantial and worrisome that federal regulators are looking to restrict the credit product even further, according to an article co-written by Prashant Gopal and Elizabeth Dexheimer for Bloomberg.

This boom is alarming federal regulators. Lenders, who can charge thousands of dollars in fees, are encouraging veterans to extract as much as 100% of their home equity. Many of the borrowers have poor credit and low incomes, and they could soon find themselves deep underwater.

Multiple refinancings helped spark the 2008 financial collapse. In a recent Federal Register notice, the VA itself says financial companies are reviving “subprime lending under a new name.”

VA loans, which are backed by Ginnie Mae, provide veterans with a mortgage. However, refinancing these loans can be expensive, as borrowers run the risk of extending their term of debt for decades, according to the article.

In perhaps a sign of growing concern, Ginnie and Congress attempted to halt unnecessary refinancing by restricting the pools of mortgages for bonds it guarantees.

That being said, the article points out that lenders have still managed to leverage loopholes for cash-out refinances.

Even after the crackdown, the proportion of borrowers who took cash out of their mortgage and then refinanced again in six to eight months rose over the past year, to 7%  from 6%, according to data compiled by Ginnie Mae.

The article states that government regulators fear continual and frequent refinancing could ultimately lead to higher interest rates for not only veterans but all consumers.

This realization has lead Ginnie to consider further restrictions for the pool of mortgages it backs, and the VA to propose an “actual benefit” standard for cash-out refinancing loans. 

Most Popular Articles

3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please