Posted on: February 9, 2018
Nine VA lenders are being targeted by the government over refinance rates, according to Bloomberg.
For those eligible for VA loans and refinance loans, this could mean rates dropping by as much as half a percentage point.
According to the report, Ginnie Mae, a government-owned company that helps reduce the rates of mortgages by guaranteeing money, has accused the nine lenders of forcing rates higher. This is done through a process called ‘churning.’
Churning happens when lenders convince homeowners with VA loans to get unnecessary refinances. All these refinances are then lumped into bonds which are sold to investors and guaranteed by Ginnie Mae.
By producing as many bonds as possible, the cost of the bond decreases – but effective mortgage rates increase.
For those eligible for VA loans, this raises the rates available to veterans, among other groups whose mortgages are eventually backed by Ginnie Mae.
These lenders did this by convincing current veterans with VA loans that they should get a refinance – even if the rate was much lower and hardly affected monthly payments. They would then rush the refinance through – sometimes at five times the normal speed – and then try to convince the same homeowner to get another refinance just a few months later.
Now that these lenders have been exposed, they’ll be forced to stop churning. The result could be a quick drop in effective mortgage rates.
That could mean the time to lock in on refinance rates is coming soon.
The VA loan is already the best mortgage option available. Along with not requiring a down payment and having low costs, VA loans also have some of the lowest mortgage rates around.
However, churning has forced rates higher – all in an effort to sell bonds.
Ginnie Mae, who guarantees over $2 trillion in bonds that contain different types of loans along with VA loans, sent out warnings to these lenders who forced rates higher.
Other loans, such as loans commonly used by first-time home buyers and refinancers, were also rolled into these bonds.
The lenders likely targeted these groups because they had access to some of the best loans. VA loans are incredibly safe for both lenders and home buyers, making them an obvious target.
Lower rates would be welcomed news, especially since mortgage rates have been trending higher. VA loans already have the best rates, so this would only be icing on the cake for eligible refinancers and home buyers.
While rates are bound to decrease following this news, there’s no telling how soon rates will drop, or by how much.
Any veterans with a VA loan looking to refinance might want to track rates over the coming weeks. The lower rates get, the better the savings on monthly payments.
However, anyone with a VA loan should keep in mind that refinancing should be done only if there are clear savings. Many of the lenders accused by Ginnie Mae offered refinance rates just slightly below the homeowner’s current rate.
Keeping up on VA rate changes is the best way to ensure that you’re saving money on your refinance.