Life for a military veteran is not always easy, and the federal government is concerned it may even be unfair.
The Consumer Financial Protection Bureau and the VA have for years warned veterans to avoid home loan and refinancing offers that seem “too good to be true.” The CFPB, having discovered enough deceptive refinance loan practices warranting a VA home loan-related “Warning Order,” is raising awareness of companies that use misleading marketing tactics to appear to be sanctioned by the VA.
According to Politico, a number of federal subpoenas requesting information on delinquencies and payments have recently been issued to eight mortgage lenders recommended by the Department of Veterans Affairs. The investigation may soon determine if these lenders have overcharged veterans on their home loans between 2013 and 2017.
Disabled Veterans Forced To Pay More
The VA charges most borrowers a funding fee, which is waived if the applicant is a disabled veteran. However, veterans whose disabled status is still pending when the loan is approved have also been charged the fee. According to Kare 11, the VA has been aware of this flaw in the system since it conducted an internal audit in 2014
“The St. Paul Regional Loan Center has discovered that in the last 8 years, Veterans have been paying funding fee charges when they were exempt from the Funding Fee,” the VA’s Funding Fee Payment Analysis report states.
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According to DisabledVeterans.org, as much as $1 billion annually is collected through funding fees. The VA has not compensated every veteran affected by this issue, but it has provided a potential solution.
“We estimate that Funding Fee refunds initiated by lenders currently take approximately 20 minutes to process,” the VA report states. “Extrapolating that number over the 47,588 anticipated refunds gives us an estimated 951,160 minutes, or nearly 16,000 hours to complete. This would be approximately 8 full time employees (FTE) for 1 year. We believe that timeframe could be cut in half if a dedicated staff is utilized and they are allowed to apply all refunds to loans that are current.”
“A major issue under review is how VA credits borrowers who, after loan closing, were awarded disability compensation with retroactive effective dates,” wrote VA press secretary Curt Cashour. “The department is working to determine how far VA can go to provide relief, given the current restrictions of applicable laws.
“VA’s ongoing quality review looked at millions of loans dating back to 1998 originations. Since the initiative is ongoing, VA has not totaled how many borrowers might be helped by the new efforts.”
Excluding Unscrupulous Lenders
The Interest Rate Reduction Refinance Loan program helps veterans refinance VA loans without an appraisal or additional underwriting, which also leaves the system open to abuse from dishonest lenders.
In June 2018, Ginnie Mae, a mortgage bond issuer focused on government-backed VA mortgages, removed VA single-family guaranteed loans pooled by Freedom Mortgage, SunWest Mortgage and NewDay USA. Since then, Nations Lending submitted a response letter to Ginnie Mae providing a detailing the steps taken to avoid churning through mortgage bond prepayments, and was reinstated to the program, but Ginnie Mae is still considering excluding other high-risk VA loans from its products.
A request for input from Ginnie Mae said the practice of churning was not appropriate for VA mortgages. Not only does this leave the applicants much deeper in debt than they would have been without, it weakens mortgage bonds, which affect all Americans.
As Military Benefits reports, VA refinance loan scams and deceptive offers can take many forms. It’s a challenge for the VA to set an appropriate and universal standard for third-party lenders without being overly restrictive.
The CFPB offers the following red flags to look out for when comparing home mortgage or refinancing options:
- Surprisingly low-interest rates
- Skipped mortgage payments
- Large cash back incentives
- No up front costs Instant approval
Learn more about avoiding VA loan scams in the video below.
Matthew Russell is a West Michigan native and with a background in journalism, data analysis, cartography and design thinking. He likes to learn new things and solve old problems whenever possible, and enjoys bicycling, going to the dog park, spending time with his daughter, and coffee.