For years, active and veterans considering buying or refinancing their homes have been subject to unfair lending schemes, from high fees and high interest rates to unfavorable refinancing plans. This was the focus of federal lending reform in 2018.
But Report released on Tuesday D-Irvine Rep. Katie Porter suggests that these protections may have been short-lived.
According to Porter’s report, two lending practices, which are generally considered disadvantageous to all consumers, have been steadily increasing among veteran consumers since July 2020. One is cash out refinancing. This refinancing encourages homeowners to monetize some of their home’s equity, but often requires a significant amount of money to be paid under unfavorable conditions. The other is the cancellation of the loan. In this case, the homeowner is encouraged to refinance immediately after the mortgage is issued as a way to generate repetitive closing cost income for the lender.
Porter said some of the lenders punished for such tactics a few years ago have returned and are claiming “tens of thousands of dollars more on the same loan than their competitors” to revive these practices. He added that he was calling for new reforms to prevent it.
She also urged regulators to immediately suspend two major Veterans Affairs (VA) mortgage lenders, New Day USA and Federal Savings Bank.
Porter, a former law professor at the University of California, Irvine and author of the law textbook “Modern Consumer Law,” said:
John Colek, CEO of Federal Savings Bank, a Chicago-based lender with offices in Irvine, said in a statement Tuesday that his leadership team did not have time to review Porter’s full report. He said he couldn’t comment yet.
NewDay USA has issued a company statement refuting some of Porter’s allegations. In particular, the Maryland-based company said it has higher interest rates than its competitors because it sells cash-out refinancing loans to customers with low average credit scores. Customer groups are usually ignored by other lenders.
“NewDay USA’s mission is to serve US veterans and we take pride in the work we do to help them realize their home dreams.”
Seven lawmakers, led by Mike Levin and D-San Juan Capistrano, signed a letter on Tuesday calling on federal regulators to consider Porter’s analysis.
“We all need to ensure that VA lenders do not abuse this program for their own benefit and that veterans do not diminish their ability to purchase and maintain home ownership.”
Founded in 1944, the VA Mortgage Program has traditionally provided affordable mortgages to service members, veterans, and eligible dependents. These mortgages did not require a down payment, as the loans were often backed by the Department of Veterans Affairs.
However, while this program helped many military families reach the middle class, many military borrowers were young and these companies had offices around military bases with few other lenders. The installation makes it a more targeted environment for predatory lenders, Porter said.
“Veterans have only a few lenders to choose from because big banks have chosen not to take out VA loans,” said Jason Richardon, director of research and evaluation at the National Community Reinvestment Coalition, a nonprofit organization that traditionally tracks lending practices. Says. An underserved community.
But VA data shows NewDay USA was the 10th largest VA lender in the second quarter of this year, with a total of 7,075 loans totaling approximately $ 1.6 billion, ranking fourth in terms of cash-out refinancing loans.
NewDay USA claims that VA cash out loans make up only 13% of the products sold in 2020. The company also states that customers have saved an average of $ 617 per month by choosing VA cashout refinancing.
The Federal Savings Bank was 12th overall in loans last quarter, but 6th in cash-out refinancing loans.
Porter’s report includes an example of a 2019 mailer labeled “Expiration Notice” sent by the Federal Savings Bank to veterans. Porter tells veterans that mailers are designed to look like official government documents and need to take steps related to VA loans, but they actually sell cash-out refinancing loans. Claims it was an advertisement.
In August 2018, cash-out refinancing loans peaked, accounting for 87.1% of all new VA mortgage products. Such a loan can result in less monthly payments, but it adds a long-term cost to a VA loan and, in some cases, an additional $ 28,000 to a $ 400,000 mortgage.
There have also been reports of lenders taking out loans at high interest rates and later encouraging veterans to refinance quickly and collect additional charges.
In a 2018 report, the Department of Veterans Affairs wrote: “Basically, lenders will revive the term of subprime mortgages under a new name,” referring to the types of financial instruments that caused the Great Recession in 2007.
Senator Thom Tillis (RN.C.) and Elizabeth Warren (D-Mass.) Helped pass the 2018 reforms to reduce such practices. The Trump administration and Congress have passed regulations to reduce mortgage churn and strengthen consumer protection for veteran borrowers. In particular, the new rules have established a six-month “cooling” period before new mortgages are refinanced.
From 2018 to 2019, eight different lenders were suspended from the VA mortgage program due to concerns related to churn.
NewDay USA was among those suspended at that time, but the company claimed to be on the list on Tuesday. Credit scores have begun to improve. “
New cash-out refinancing loans are below their 2019 highs, but have increased by 50% since July 2020.
“Veterans who received these loans in 2020 may have accessed these assets to solve pandemic-related financial challenges,” Levin and colleagues wrote in a letter to regulators. increase.
“But (Porter’s) reports show that some VA lenders support veterans with unfavorable lending terms and higher-than-average costs.”
According to Porter’s report, the average initial cost of cash-out refinancing issued by NewDay USA in 2020 was almost twice that of its competitor USAA, higher than all lenders except one major lender.
“We have to stop this bad behavior,” Porter wrote.
Levin and his colleagues asked the Department of Veterans Affairs, Consumer Financial Protection Bureau, and Genie May to share the findings and inform them of the actions they took in connection with the issues reported in Porter’s report. ..
https://www.siliconvalley.com/2021/08/04/report-lenders-again-are-targeting-veterans-with-predatory-home-loans/ Lenders Again Target Veterans With Predatory Mortgages – Silicon Valley