Ginnie Mae removes VA loan restrictions on NewDay USA and SunWest Mortgage

Part of agency's effort to control VA loan churning

More than a year after initially being restricted from participating in all of Ginnie Mae’s mortgage-backed securities programs due to issues with Department of Veterans Affairs mortgages, NewDay USA and SunWest Mortgage are restricted no longer.

Last year, Ginnie Mae moved to restrict VA single-family guaranteed loans pooled by SunWest Mortgage and NewDay USA. That decision was part of the agency’s effort to control a rise in mortgage lenders that were aggressively targeting service members and military veterans for quick and potentially risky mortgage refinances.

Under the restriction, NewDay and SunWest were limited to participating in Ginnie Mae II custom pools for VA single family guaranteed loans.

But Ginnie Mae announced last week that it is removing the restrictions on NewDay and SunWest and will allow them to utilize the Ginnie Mae I and Ginnie Mae II multi-Issuer securities programs.

According to Ginnie Mae, the removal of the restrictions is based on “the Issuers having demonstrated to Ginnie Mae’s satisfaction that (a) their prepayment speeds are substantially in-line with those of equivalent multi-Issuer cohorts, and (b) such improved performance is sustainable.”

Ginnie Mae and the VA have been looking into VA loan churning for nearly two years.

It began with an investigation into VA lending, spurred by a report from the Consumer Financial Protection Bureau and a letter from Sen. Elizabeth Warren, D-Massachusetts.

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.”

That led to Ginnie Mae and the VA launching a task force to further address the issues, seeking to review the “aggressive and misleading refinancing” marketing practices of certain lenders and address “loan churning and repeated refinancing.”

The task force resulted in Ginnie Mae increasing its oversight over VA refinances.

After that, Ginnie Mae threatened to prohibit certain lenders from participating in Ginnie Mae’s multi-issuer pools over VA loan prepayment speeds that the agency felt were out of line with typical practices.

Ginnie Mae later issued new rules on VA loan refinances, but that was after the agency booted NewDay and SunWest from some of its bond programs.

But, Ginnie Mae is now satisfied with the changes each lender has made and is removing the restrictions placed on each of them.

NewDay also received approval from Ginnie Mae to serve as a servicer/seller, and celebrated both of those achievements.

“The Ginnie Mae program provides critical mortgage financing for our nation's veterans and active duty military, and the NewDay USA team values the ability to fully participate in its single-family programs,” NewDay Founder and CEO Rob Posner said. “Our information-based strategy that focuses on analytics and credit risk is unique in the mortgage industry, and ensures we produce exemplary portfolio loan performance. Additionally, upon Ginnie Mae review, our prepayment activity has shown a significant reduction in prepayment speeds, and meets Ginnie Mae guidelines.”

But, while NewDay and SunWest are back on firm footing with Ginnie Mae, another lender finds itself restricted for similar issues.

In conjunction with removing the restrictions on NewDay and SunWest, Ginnie Mae announced that it is restricting United Security Financial from including VA single-family guaranteed loan packages or pools in Ginnie Mae I securities or Ginnie II multiple issuer pools.

For the time being, USF will be limited to participating in Ginnie II custom pools. According to Ginnie Mae, the restriction takes effect on pools or loan packages submitted after Sept. 30, 2019.

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