WASHINGTON – Oct. 10, 2017 – The federal government is investigating a number of predatory lending schemes targeting thousands of veterans who have Veterans Administration mortgages (VA loans).
Officials say that the scammers’ goal is to convince borrowers to repeatedly refinance, but that means the vets ultimately pay more for their loans. Some lenders allegedly use teaser interest rates, “cash out” windfalls, and lower monthly payments to draw vets in. They may even use marketing materials that resemble Department of Defense information, the Chicago Tribune reports.
Veterans reportedly are being overwhelmed with misleading refinance offers – and some end up refinancing properties multiple times in one year.
“We’re seeing borrowers refinance three times in less than six months, and their loan balances are going up,” says Michael R. Bright, acting president of VA loan giant Ginnie Mae. The Department of Veterans Affairs has teamed with Ginnie Mae to create a task force to investigate such cases.
Ginnie Mae investigators have found that these refinancing offers often prompt homeowners to switch from a long-term fixed-rate mortgage to a riskier short-term adjustable-rate loan. The borrowers then find that the principal amount they owe to the lender has increased by thousands of dollars. In some cases, borrowers added $12,000 to their total loan amount in order to reduce their monthly payments by $165. Ginnie Mae economists say it would take more than six years just to break even on such a deal. VA home loans often have no downpayment requirements.
The VA warned that lenders who make “improper charges or fees” that lead to foreclosure will face stiff penalties. The Consumer Financial Protection Bureau plans to fine and sue lenders who propagate these abuses.
Source: “Government Cracks Down on Home Refinancing Scheme Targeting Veterans,” Chicago Tribune (Sept. 26, 2017)