Ginnie Mae, a government corporation that oversees the process for ensuring the success of the government’s mortgage-backed securities guarantee, has restricted Freedom Mortgage Corporation and SunWest Mortgage Company, Inc. from Ginnie Mae’s main securities programs, according to a Ginnie Mae announcement.
The companies still can sell their VA-backed loans into Ginnie Mae custom pools, but they won’t be able to place them into pools with other lenders. That likely means terms on their loans won’t be as good for borrowers.
Their restriction is effective July 1 and concludes in January, assuming they demonstrate that pre-payment speeds of loans are “substantially more in-line” with others in the industry, and that they can sustain the improved performance, according to the Ginnie Mae announcement.
Freedom Mortgage “stands firmly against the practice of loan churning and is committed to acting in the best interests of our nation’s veterans,” said Stanley Middleman, CEO of Freedom Mortgage, in a statement. He noted the company welcomes the increased transparency and has been “working closely and cooperatively with [Ginnie Mae] to make sure that Freedom’s prepay speeds are in line with other market participants.”
Officials at SunWest did not immediately respond to requests for comment.
Regulators, veteran advocates and many in the lending industry have expressed concern about the practice of “loan churning,” where veteran borrowers are pushed to refinance their VA loans. These borrowers are targeted with an onslaught of mortgage-refinance solicitations, often shortly after they’ve closed on a home loan. Some borrowers have been convinced to refinance their loan multiple times in a year, often with little or no financial benefit. Fees attached to the deals increase the overall loan amount each time it’s refinanced.
In May, President Donald Trump signed a law that includes provisions to help make sure veterans are getting a tangible financial benefit when they refinance their VA loans. VA has implemented the rules for all applications for VA loan refinance applications on or after May 25.
About 99 percent of VA loans are secured into a Ginnie Mae mortgage-backed security and then sold in the secondary mortgage market with a full faith and credit guaranty from Ginnie Mae, which is also responsible for policing their program to protect against loss.
Ginnie Mae has placed similar restrictions on two other lenders this year. NewDay USA has had a restriction since April 1, and that will end in October if NewDay demonstrates to Ginnie Mae that they have met the requirements.
Nation’s Lending’s previous restriction has been removed.
According to a statement from NewDay USA’s retired Navy Rear Adm. Tom Lynch, co-chairman of the NewDay USA Foundation, NewDay is continuing to make VA loans to the veteran community as well as active-duty members. “The veteran community is typically underserved by the nation’s largest banks and financial institutions. Many of our customers tell us they have been turned away by those very same lenders,” Lynch stated.
NewDay has “made it very clear to Ginnie Mae we do not churn loans and their leadership agreed that NewDay USA does not churn loans,” Lynch stated. He also cited the low delinquency rates of loans in their Ginnie Mae portfolio ― recently 0.75 percent.
NewDay supports stronger measures to end loan churning, similar to its current practices, according to Lynch. They don’t charge loan origination fees on VA loans being refinanced to new VA loans, according to Lynch, and they will only refinance these loans once a year, while making sure borrowers get a tangible benefit from refinancing.
Karen has covered military families, quality of life and consumer issues for Military Times for more than 30 years, and is co-author of a chapter on media coverage of military families in the book "A Battle Plan for Supporting Military Families." She previously worked for newspapers in Guam, Norfolk, Jacksonville, Fla., and Athens, Ga.