The Consumer Financial Protection Bureau and Veterans Affairs alert Veterans and Servicemembers of too-good-to-be-true offers to refinance their VA loans via a warning order issued late November.
This reinforces previous government actions in the wake of risky refinance loans made by predatory lenders. Ginnie Mae who pools VA loans into securities has already imposed a seasoning requirement of seven months before any refinance of any VA loan takes place.
Read up on this warning order on unsolicited VA refinance offers.
The Warning Order
Both the CFPB and VA warn current borrowers of VA loans that they may have received letters offering to refinance their home loans through VA Streamline (IRRRL) or VA Cash-out Refinance.
These letters look official as something coming from VA and contain many promises that sound too good to be true.
Extremely low rates, cash back in thousands of dollars, skipping mortgage payments, no out-of-pocket costs, and no waiting period as opposed to the seasoning requirement.
These are some of the promises, as enumerated by the CFPB and VA. They could very well entice Veterans and Servicemembers into refinancing their existing VA loans.
But should you refinance if you were an existing VA homeowner? Or should you not?
Watch Out for Scam VA Refinance Offers
While some lenders may employ “aggressive and potentially misleading” tactics, these refinances result in limited benefit and thousands of dollars added to the new mortgage loan instead, per the CFPB and VA.
How do you deal with these unfavorable and expensive offers?
The CFPB’s “Know Before You Owe” comes to mind. And the two federal agencies gave tips to VA homeowners on how to detect red flags in the following offers.
* The truth about “skipped payments”. VA clarifies that it does not allow skipping a payment or two or rolling them into new IRRRLs. It does not condone lenders advertising this to get borrowers to refinance or use it to make up for the no cash-back policy of the VA streamline program. VA finds this advertising practice unacceptable.
* The truth about “refund from escrow account”. The amount that a borrower can receive as refund from his or her escrow depends on what’s left in the account. Some have been promised to receive a specific amount only to receive something lower at closing. Others also reported having paid for the shortfall via higher monthly payments.
* The truth about “extremely low interest rates”. The CFPB and VA warn that the rates advertised by lenders in their offers are in most cases that of 15-year mortgages who have lower rates than 30-year mortgages, or adjustable-rate mortgages. Another catch is you may have to pay discount points to get that low rate.
Be aware that these lenders will be pushy, calling you a number of times and pressuring you to refinance within a month or two of closing your loan.
As can be gathered from the CFPB and VA warning order, skipped payments, escrow refunds and no-out-of-pocket closing costs only add to the cost of the new loan. This, according to the warning, shows that the refinance will be of less benefit to you.
You Can Do Something
Report any VA mortgage issue you’ve come across by filing a complaint online and/or call 855 411 CFPB (2372).
You can also add your phone number on the Do Not Call Registry to reduce the chances of getting these unsolicited offers.
Stay vigilant and be informed on your rights and duties as a VA homeowner. You can always go back to IRRRL rules and compare them with what you see in the offer.