U.S. Looking into Just How Widespread Process of “Churning” Is
Lenders are being investigated by the U.S. government-owned Government National Mortgage Association, also known as Ginnie Mae, for allegedly pressuring veteran members of the military into unnecessary mortgage refinances, which leads to little or no benefit for the veterans but generates high fees for the lenders in a process known as “churning.”
Ginnie Mae, which is conducting the probe, was created in order to make mortgages more affordable by guaranteeing repayment on $2.0 trillion of mortgage bonds even if the borrower were to default on the loan. Ginnie Mae is also involved in several housing initiatives, including loan programs that are designed to help veterans. For instance, veterans have access to different loan structures than most Americans, benefiting from loan deals that don’t require down payments and feature other perks, all backed by Ginnie Mae.
But the concern is that lenders in the Ginnie Mae pool have been churning veterans, which is to say pressuring them into refinancing their mortgage. Initially, the lenders promise a lower rate on the mortgage but that often turns out not to be the case, and sometimes even leads to higher costs for the veterans. On the other end, the lenders extract high fees for the restructuring process.
Senator Elizabeth Warren sent an open letter to Ginnie Mae last week asking for details about the churning process and how veterans were being affected.
Sen. Warren wrote that “market analysts have noted that certain VA mortgage servicers are significantly more likely to “churn” loans – that is, successfully solicit an existing VA borrower to refinance her mortgage – and that the “share of ‘churning’ servicers on the newer [Ginnie Mae] pools remains fairly high.” These high churn rates could reflect the aggressive marketing tactics highlighted in the (Consumer Financial Protection Bureau) report.”
In response to the letter, Ginnie Mae President Michael Bright wrote his own open letter, thanking Sen. Warren for her concern and laying out that a task force has been created in order to investigate churning, while also admitting that predatory lenders did exist in the Ginnie Mae pool.
The letter did acknowledge that “evasive mechanisms” were being used to dodge these restrictions, however, meaning that predatory lending was still occurring within the pool despite their efforts to stop it.
“Sen. Warrant Letter,” Senator Warren, September 6, 2017.
“Ginnie Mae Letter,” Ginnie Mae, September 14, 2017.