Have you heard about Mortgage Churning? Over a year ago, we at Palm State Mortgage began hearing more and more about this sad phenomenon. Mortgage Churning is apparently happening to veterans all over the United States.
What is Mortgage Churning?
Mortgage churning is repeatedly refinancing homeowner’s VA mortgage and putting fees on top of fees.”
This type of mortgage refinancing begins after the veteran first buys or refinances a house. Mail and phone-calls blitz the veteran. The veteran is touting with the charm of refinancing–again. Now, everyone knows that refinancing can sometimes be advantageous to a homeowner. But not always. And certainly, This refinancing strategy is not to be utilized very often.
At Palm State Mortgage, we can see how veterans are affected by a high saturation of advertising campaigns. And Veteran homeowners are often deceived by these campaigns. Without detailed study or a professional financial adviser, he or she might not realize the truth. And the truth is that the repeated new refinance loans are not beneficial in the long run. To say the least, we see mortgage churning as despicable behavior on the part of the companies involved.
Ginnie Mae Sanctions Mortgage Lenders for Mortgage Churning VA Loans
Ginnie Mae stands for Government National Mortgage Association. The association is often referred to as Ginnie Mae or GNMA. Ginnie Mae is a U.S. government corporation within the U.S. Department of Housing and Urban Development (HUD). Ginnie Mae came into being in 1968 with the goal of promoting homeownership.
They keep a close eye on mortgage activities. Ginnie Mae had announced several warnings against the dubious practice of Mortgage Churning in the last year. To put it briefly, the companies did not take the hints. And last week, “Ginnie Mae announced late Friday that it is booting three Department of Veterans Affairs mortgage lenders from its main securities programs.”
If you are a veteran or you know one, you might recognize at least one of these names from the junk mail on your dining room table or desk. Ginnie Mae has “restricted VA single-family guaranteed loans ” pooled by three VA lenders:
- Freedom Mortgage,
- SunWest Mortgage
- and NewDay USA.”
Ginnie Mae Lowers the Boom On Mortgage Churning
Officials from Ginnie Mae stated, “All three issuers are restricted from including VA single family guaranteed loans in Ginnie Mae I securities or Ginnie Mae II multi-issuer securities.
- They restricted Freedom and SunWest beginning July 1, 2018, through January 1, 2019,
- NewDay’s began their restriction on April 1, 2018, and it will end on October 1, 2018.
Please Note: The ending dates of the restrictions for Mortgage Churning are dependent on the fact that the company has shown certain improvements.
1. Prepayment speeds are substantially more in-line with those of equivalent multi-issuer cohorts.
2. Plus they must show that “such improved performance is sustainable.”
3. Thus, during this time, the companies will continue to work but with new rules. These are rules designed to restrain mortgage churning. (See the new rules below.) “The lenders will remain approved Ginnie Mae issuers and remain authorized to pool FHA and RHS single family insured mortgages in all eligible Ginnie Mae pool types.”
Shiny New Requirements for VA Refinance Loans
The new guidelines specify that all refinance loans insured or guaranteed by the VA are only eligible for Ginnie Mae securities if the loan meets both of the following conditions.
1. The first is a matter of timing. “The date is 210 days after the date on which the first monthly payment was made on the mortgage being refinanced.”
2. The second is a matter of money. The homeowner must have previously made six full monthly payments on the mortgage he or she wants to refinance.
(These changes will go into effect for all security issuances on or after June 1, 2018. But it does not affect the guaranty or composition of MBS issued before that date.)
Finally, we at Palm State Mortgage praise Ginnie Mae for these new requirements. Significantly, they were newly published last week.
Palm State Mortgage Company recognizes Ginnie Mae as a champion. Ginny Mae is fighting to protect service members and veterans from lending practices that could be considered predatory.
Ginnie Mae Gave Fair Warning to the Offending Lenders
Last year Ginnie Mae reported it was investigating mortgage lenders. They effectively chastised companies who were “aggressively targeting service members and military veterans.” They were being targeted for quick and potentially risky refinances of their mortgages.
This polite alert turned into a warning for some lenders to cease the mortgage churning. The next step was obvious. “Then, early this year, Ginnie Mae warned a “small number” of lenders to get their VA to refinance programs under control. And If they do not comply “they will no longer be allowed to participate in Ginnie Mae multi-issuer mortgage-backed securities.”
That statement was not idle intimidation. And now we have seen Ginnie Mae follow through with her promised threats. And we can only say, “Bravo.”
The Mortgage Churning Lure: Cash in the Wallet is the Churner’s Bait
You might ask, “How do these companies lure veterans into refinancing?” The answer is that they glorify the monthly advantage. It’s true that they can remove money from a monthly payment. However, this should not be marketed so it diverts attention from the fees that build up after every refinance.
Experts state, “The veteran has to be aware that every time they’re approached” with refinancing offers. “They need to take the time to understand what it really means.” And they continue, “Because all they could be doing is digging a bigger hole for themselves.”
Churning Should Not Be for Dollars
Michael Bright is Ginnie Mae’s executive vice president and chief operating officer. He stated, “By addressing the anomalous performance of a few lenders, Ginnie Mae is acting to protect veterans, the broader Ginnie Mae program, the American taxpayer and the consumers we serve.”
Likewise, Bright added. “We expect issuers receiving these notices to respond quickly, produce a corrective action plan and come into compliance with our program.”
We hope that Bright’s optimism will be rewarded. At Palm State Mortgage Company, we are watching for the results of Ginnie Mae’s efforts. As always, we will be watching and reporting on new developments. We hope to see that the term “churning” goes back to its old-style, historical meaning. The churning we refer to is the making of butter, not unethical re-financing mortgages.
As always, the owners and staff of Palm State thank you for reading our blog. We continually strive to illuminate your voyage to home ownership with understandable financial information about the mortgage world.