New VA Policy Protects Veterans from Predatory Lenders

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WASHINGTON — The Department of Veterans Affairs proposed rule changes to its home loan guarantee program that aim to stop lenders from aggressively targeting and pressuring veterans to refinance their home loans.

According to STARS AND STRIPES Magazine, members of the House Committee on Veterans’ Affairs on Wednesday discussed the problem of some mortgage firms attempting to coerce veterans who use the VA home loan program into unnecessarily refinancing their loans, racking up fees and lengthening their debt repayment.

There is a  practice gthat is referred to as “loan-churning,” was highlighted when Ginnie Mae – a government-owned entity that aims to make mortgages more affordable – announced an investigation into lenders improperly pressuring veterans to repeatedly refinance loans with little or no benefit.Loan-churning happens more often with VA mortgages than loans insured by other agencies, said Michael Bright, vice president of Ginnie Mae.

Jeffrey London, director of the VA loan guaranty service, said the agency is working on a remedy. The VA and Ginnie Mae formed a task force in October and drafted regulations that the VA plans to release soon for public comment, London said.

The regulations could include a requirement for a lender’s refinancing to meet a certain tangible net benefit for veterans, like what the Federal Housing Administration already compels lenders to prove before refinancing loans that it insures.

The VA also issued a new policy implementing the May 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act, to protect veterans who apply for a VA guaranteed loan refinance.

According to Military.com the new act will help protect veterans and service members from the dangers associated with repeatedly refinancing their home loans.

 

“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,” said Acting VA Secretary Peter O’Rourke. “This is yet another tool that will help veterans meet their personal goals.”

Among the changes which became effective May 25, 2018:

  • The interest rate on a new fixed loan must be at least half a percentage point less than the previous loan. Adjustable-rate mortgages must be at least 2 percentage points less.

  • The lender must certify that all costs and fees will be recouped by the borrower within 36 months of the loan date.

  • Veterans can’t refinance to another VA-backed loan for 210 days (up from 180) or the date on which the sixth monthly loan payment is made, whichever is longer.

The VA does not issue the loans. The VA only guarantees to the lender that the veteran is a good credit risk when deciding for the loan approval.  A typical VA-backed home loans does not require a down payment. The VA loanser have low closing costs, and are the lowest interest rates. (Source: Military.com, STARS AND STRIPES)