Ginnie Mae advises in the report that in early 2016 it and investors in Ginnie Mae guaranteed MBS “first began to identify a wave of early loan repayments and serial refinancing as a problem with much greater incidence in VA mortgages in Ginnie Mae securities than loans insured by other agencies.” Ginnie Mae states that while some refinances were due to legitimate factors, specifically lower interest rates and the lower costs to refinance a VA loan as compared to a Federal Housing Administration (FHA) insured loan, “Ginnie Mae’s internal analysis indicated that some loan prepayments of VA mortgages could not be justified by economic factors.” Ginnie Mae refers to the loan churning that was occurring with VA loans. Ginnie Mae also states that when a higher level of prepayments “is the result of marketing schemes to repeatedly refinance a borrower’s mortgage, without a corresponding net benefit to the borrower, refinancing can be harmful from an economic standpoint.” Ginnie Mae notes steps that it and VA took, including steps required by the Growth Act, to address the issue. We recently reported on a VA proposal to amend its rules regarding refinance loans to reflect requirements imposed by the Growth Act.
Ginnie Mae believes that because VA loans have increased in their share of loans backing Ginnie Mae guaranteed securities, and because of the characteristics of the VA loan program, the program requires continued scrutiny. However, Ginnie Mae notes that it “does not have the authority to set program parameters regarding loan origination practices or to take action if unfair or deceptive origination and servicing practices are detected at the [lender] level—concerns in these areas are normally the jurisdiction of the insuring agency or the Consumer Financial Protection Bureau (CFPB).”
While Ginnie Mae believes that the liquidity in the VA loan market is strong, it also believes that “there are opportunities to strengthen and/or solidify liquidity and protect America’s veterans, especially through stronger coordination with other agencies.” Ginnie Mae makes the following recommendations:
- VA and Ginnie Mae create a VA/Ginnie Mae Working Group that meets quarterly to discuss current issues, policy considerations and market conditions.
- VA, Ginnie Mae and CFPB create a Protecting Veterans Task Force that meets at least biannually to discuss and share monitoring information related to any potential lender abusive, unfair or deceptive practices.
- VA, Ginnie Mae, and CFPB execute a Memorandum of Understanding to share information and data. (Ginnie Mae notes that increased information sharing across these three agencies will both support VA program liquidity and enhance consumer protection for VA loan borrowers.)
We previously reported on a series of CFPB consent orders with lenders in which the CFPB alleged false and misleading advertising of VA refinance loans.