Government cracks down on refi scheme targeting veterans
VA home loans are backed by the Department of Veterans Affairs and often have no down payment. Lenders who originate them receive guarantees of a portion of the loan amount against loss in the event of a default. Ginnie Mae bundles VA and Federal Housing Administration (FHA) loans into mortgage bonds, which are then purchased by investors who receive guarantees of timely payments.
In an interview, Michael R. Bright, acting Ginnie Mae president, said some of the abuses he is seeing hark back to 2005 and 2006 -- heyday years of the boom before the bust. "We're seeing borrowers refinance three times in less than six months and [their] loan balances going up." Homeowners also are dumping fixed-rate loans for riskier adjustables.
"That was the play back then" during the boom, he said. Now it's back.
Bright declined to name mortgage lenders who are most aggressively involved in abusive refis, but he said violators of agency rules face financial penalties and loss of eligibility to participate in bond offerings -- essentially closing down their funding source. Depending on the abuses documented, cases may also be referred to other agencies, such as the Consumer Financial Protection Bureau, which can levy large fines and pursue lenders in federal courts. The Department of Veterans Affairs has joined Ginnie Mae to create a task force that is now compiling information. In a statement, the VA said lenders whose "improper charges or fees" lead to foreclosures face penalties including reimbursements to the government and individual veterans.
Bottom line for VA borrowers: Look skeptically at all refi promotions. Run the numbers to see whether refinancing will leave you better off -- or deeper in debt.
Ken Harney's email address is firstname.lastname@example.org.
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