Fed Continues To Fight VA “Loan Churning”
Earlier this year, the Fed announced their commitment to prevent “loan churning” and threatened nine different lenders who were suspected of the practice. This week, they’ve followed up and taken action.
On June 18th, government-owned Ginnie Mae enforced new rules on two mortgage lenders suspected of loan churning. This move is expected to protect veterans and military homeowners while also potentially dropping rates.
Ginnie Mae has been making an effort to prevent “loan churning,” or the practice of convincing current homeowners that they should continually refinance their mortgage. The more refinances these companies create, the more they’re able to sell through mortgage-backed securities.
According to Ginnie Mae, these companies will not be unable to sell mortgages in pools with other lenders until the beginning of 2019. This should make it more difficult for them to sell their loans, decreasing the risk of churning loans.
For VA homeowners, this is good news. VA refinances are valuable to lenders since they’re among the safest mortgages out there. However, companies have tried to take advantage of the VA refinance programs – and, as a result, VA homeowners.
Some new VA homeowners were immediately solicited with refinance opportunities by their lender. Some of those homeowners were convinced to refinance multiple times a year.
Each time a homeowner refinances, they have the opportunity to lower their mortgage rate. However, with multiple refinances in such a short period of time, the rates available to the homeowner would have fluctuated by very small amounts, saving them small amounts of money, if any.
On top of that, fees associated with refinances could have easily outweighed any savings, making the loan more expensive for the homeowner.
While many current VA homeowners could save money with a refinance, it’s best to make sure that the refinance is going to work for the veteran and not the lender.
VA Rates Could Start To Drop
One consequence of loan churning is that mortgage rates can be forced higher. The higher the number of closed mortgages, the higher mortgage rates go. With Ginnie Mae putting a halt to loan churning, there’s a chance that mortgage rates could start to drop.
This is welcoming news, especially since mortgage rates have been steadily climbing throughout the year.
The main way homeowners save money with a refinance is by lowering their rate. Lower rates mean lower monthly payments.
Many homeowners who have built equity could be able to refinance their mortgage and get a lower rate in the process, saving them money through the rest of the life of the loan. The best way to find the right lender for your refinance is to check with multiple lenders and compare their offers.
If you have a trusted lender, it could be best to speak with them to see if you can save money on a refinance.
Current VA rates
VA loans and refinances are often considered to be the best mortgage products available. Unfortunately, some businesses will try to take advantage of veterans through programs like loan churning.
If you’re considering refinancing your home, the best thing to do is to see what rates are available to you. Lower rates could save you money in the long run.
With Ginnie Mae taking action, mortgage rates could start to drop. Anyone who thinks they may be able to save money with a refinance should keep track of rates over the coming weeks.