Ginnie mae is stepping up the pressure in its fight against a segment of mortgage lenders who are aggressively targeting the military and veterans for quick and potentially risky refinances of their mortgages.
It started with a investigation in “loan repayment”, the practice of convincing an existing borrower to refinance their mortgage. Then Ginnie Mae and the Department of Veterans Affairs launched a working group to determine what action to take to resolve the problem, and finally, Ginnie Mae increased its surveillance on VA refinances.
Now, Ginnie Mae is threatening a small number of lenders with being kicked out of her primary mortgage bond program if lenders ignore their unusually high prepayment speeds.
“We have an obligation to take the necessary steps to prevent the lending practices of a few from affecting the performance of our multi-issuer securities, and thus increasing the cost of homeownership to millions. of Americans, ”Michael Bright, Ginnie Mae’s executive vice president and chief operating officer, said.
“By addressing the abnormal performance of a few lenders, Ginnie Mae is acting to protect veterans, the broader Ginnie Mae agenda, the US taxpayer and the consumers we serve,” added Bright. “We expect issuers receiving these notices to react quickly, produce a corrective action plan and comply with our program. “
According to Ginnie Mae, it has notified a “small number of issuers” whose prepayment speeds are “outlier” compared to other participants in Ginnie Mae multi-issuer mortgage-backed securities. “Such deviations from market standards are unacceptable and endanger a veteran earned benefits,” said Ginnie Mae.
To that end, Ginnie Mae said she expects the “small number” of lenders to provide a corrective action plan that outlines “immediate strategies” to align lenders’ prepayment speeds with those of their market peers.
If lenders ignore their high prepayment speeds, Ginnie Mae said lenders “risk being limited in accessing Ginnie Mae’s multi-issuer pools.” At this point, lenders may only have access to Ginnie Mae’s Custom Pools.
“We focus on the outliers that hurt Ginnie Mae’s program, not the issuers that genuinely help support responsible lending,” Bright said. “The vast majority of our issuers fall squarely into the latter category, and we look forward to continuing to work with them to provide refinancing opportunities for veterans, rural communities and low to moderate income homeowners. “
According to Ginnie Mae, unusually high prepayment speeds have an impact on investors over time and therefore on future borrowers.
Like Ginnie Mae, the “vast majority” of loans came from VA, Federal Housing Administration, and Department of Agriculture housing programs are securitized via the Ginnie MBS platform.
“Churning practices observed in recent years are detrimental to Ginnie Mae MBS because they cause Ginnie Mae’s securities loans to be refinanced quickly,” said Ginnie Mae. “This is causing investors of all stripes around the world to withdraw capital from the Ginnie Mae market, resulting in higher than necessary borrowing rates for all Federal Housing Program borrowers.”
Ginnie Mae’s decision follows a legislative effort to address the refinancing problem that was launched recently in the Senate.
Earlier this year, a group of 12 senators from both parties, led by Sen. Thom Tillis, R-North Carolina, and Elizabeth Warren, D-Mass., introduced the “Protecting Veterans From Predatory Loans Act, 2018”.
The bill would require lenders to demonstrate a “material benefit” to consumers when refinancing their mortgage.
Denise Rohan, the national commander of the American Legion, said the group appreciated the efforts of Ginnie Mae, the VA and Senators pushing for the Predatory Loan Protection Bill.
“On behalf of two million American Legion members, I applaud Ginnie Mae’s efforts to curb deceptive mortgage refinancing marketing targeting veterans and the unscrupulous practice known as ‘churning’ – refinancing of a loan many times over to generate profits for lenders at the expense of veterans, ”Rohan said.
“Aggressive churning of home loans creates uncertainty for investors and higher interest rates for borrowers,” Rohan added. “Our veterans have not served their countries all over the world in order to be exploited by unscrupulous home lenders. The American Legion stands alongside Ginnie Mae and Senators Warren and Tillis as they work to protect veterans from predatory home loans and ensure veterans have an affordable way to access to the property.