A banking-reform bill that dials back regulations put in place after the 2008 financial crisis includes language that targets predatory lenders offering VA-backed home loan refinancing.
The Senate voted 67-31 on Wednesday to pass the Economic Growth, Regulatory Relief, and Consumer Protection Act. The House has passed a separate bank-reform bill; per The Associated Press, the next likely step is a compromise bill that would be voted on by both chambers.
Should the VA-related language in the Senate bill survive, it would prohibit lenders from offering VA-backed refinance loans within six months of a veterans’ initial loan. Lenders also would need to provide borrowers with a “net tangible benefits test” that outlines the full financial scope of the refinanced loan, so borrowers have a complete picture of what they’re saving over time.
The move comes as 'loan churning' concerns continue, with some saying the rapid refinancing can harm both veterans and the VA program.
All fees associated with refinanced VA loans would need to be recouped within 36 months, and loans that weren’t at least 50 basis points lower than the initial loan’s fixed rate wouldn’t be eligible for VA backing.
The language comes from a bipartisan lending bill co-authored by Sens. Thom Tillis, R-N.C., and Elizabeth Warren, D-Mass., and introduced in mid-January ― in part, at least, to combat “churn” issues that have caused concern among loan officials regarding rapid VA-backed refinancing. The Senate hasn’t acted on the measure since its initial committee assignment.
Despite sponsoring the VA-related bill, Warren was one of the 31 “nay” votes, all Democrats, on the overall bank-reform legislation.