What the Ginnie/VA task force will look for in its refi clampdown

Ginnie Mae and the Department of Veterans Affairs recently described in more detail the VA loan refinancing practices they will crack down on to eliminate a long-running churning concern.

The two agencies' joint task force is looking at whether any VA refinance provides a data-based "net tangible benefit" for the borrower in terms of cost, and whether costs and benefits were fully disclosed to borrowers, according to a Ginnie Mae press release.

The task force also is considering establishing time frames for the recoupment of fees and stronger seasoning requirements for the loans beyond the minimum six-month requirement put in place earlier this year.

The VA and Ginnie are looking to put an end to "aggressive and misleading refinancing propositions" as described in a Consumer Financial Protection Bureau report on VA loan complaints late last year.

Among the complaints were repeated solicitations for refinancing and misleading advertisements. Examples of misleading ads included one showing a low rate prominently on the front but had on the back fine print specifying that a product was an adjustable-rate mortgage with a charge for discount points.

About 14% of more than 12,500 CFPB mortgage complaints from servicemembers, veterans and their dependents centered on VA refis, the CFPB found.

VA loans are particularly easy to refinance because among other things they don't require an appraisal.

Churning in the sector has led to complaints by secondary market investors as well as consumers. Serial refinancing hurts the value of securitized loans because the higher prepayment rates reduce cash-flows to investors.