On an official announcement last Thursday, Ginnie Mae set a mandatory waiting period of seven months before VA mortgage holders will be allowed to refinance. The move is the corporation’s retaliation to lenders who are in the abusive practice of churning.
Per the announcement, VA Streamline and Cash-out Refinances in pools of mainline securities will not be allowed to refinance until the borrower has made six consecutive payments and seven months have passed after the homeowners first made his or her mortgage payment. The new rule will impact loans originated after April 1st.
In addition, Ginnie also hinted that it has been monitoring prepayment speeds of loans in its pools and may place sanctions on the offending lenders.Get today’s rates.
A year of complaints
In the past few year, VA lenders were placed in controversy after complaints of malpractice were reported by VA homeowners to the Consumer Protection Financial Bureau.
The changes made by Ginnie Mae will have a significant impact on big time VA loan players such as Freedom Mortgage Co. and NewDay USA which issue VA loans with rates higher than the rest of other VA lenders in the market.
Joseph Murin, former President of Ginnie Mae and current NewDay’s chairman emeritus defended the firm by saying that their rates are higher due to their willingness to take on more risk than the other players.
Per data that is available to the public, both Freedom and NewDay refinanced on property seven times within just two years from 2014 to 2017. Four of these refis were processed by Freedom while NewDay performed the other two. The other refi was performed by a different lender.
Keep them out of the pools
Churning, as it is known in the mortgage industry, is the act of misleading a VA homeowner into refinancing his or her mortgage even when it is not necessary for the purpose of financial gains.
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Murin and another former Ginnie Mae exec expressed their support for the move but said that the VA needs to revamp the program if they are to stamp out churning altogether.
“I think Ginnie Mae has done all what they really can do,” says former Ginnie President Ted Tozer. “It is still an issue. It is going to be an issue until really the VA comes out with a net tangible-benefit test.”
This “net tangible-benefit test” that Tozer talks about is an evaluation process that helps determine if refinancing will indeed be beneficial to a homeowner.
Murin said the department could have established another ruling that would block loans refinanced before the seven-month waiting period from the mainline pools. He added that they should be placed in a special pool and that the waiting period should be extended to 12 months.
For now, the corporation will continue to monitor activity, promising a more careful surveillance of suspicious loans repeatedly placed into the mainline pools within short periods.
Ginnie Mae is the government-owned corporation that insures $2 trillion-worth of mortgage-backed securities including loans backed by the Federal Housing Administration and the Veterans Affairs.Click to See the Latest Mortgage Rates»