Ginnie Mae reportedly fired two lenders from the bond program because of VA loan churn

Ginnie MaeThe battle against a number of mortgage lenders aggressively targeting soldiers and military veterans for quick and potentially risky refinancing of their mortgages has just reached a new dimension.

Earlier this year Ginnie Mae a small number of lenders have been threatened with exclusion from their primary mortgage bond program if lenders fail to address their abnormally fast prepayment speeds.

Now Ginnie Mae is said to have carried out this threat and booted NewDay USA and Nation Loans according to a report by Bloomberg from its primary mortgage loan program.

The threat came after months of increasing awareness of loan churning, the practice of convincing an existing borrower to refinance their mortgage.

It started with an investigation into Veterans Affairs Department Lending. Then Ginnie Mae and the VA set up a task force to determine what steps to take to resolve the problem, and eventually Ginnie Mae stepped up their oversight of VA refinances.

Then came the threat of banning certain lenders from participating in Ginnie Mae’s multi-issuer pools.

Now Ginnie Mae has responded to the threat.

From Bloomberg:

NewDay USA and Nations Lending Corp. Ginnie Mae bonds, mixed with loans from other lenders, have been restricted from issuing Ginnie Mae bonds as of this week, according to a person familiar with the matter.

Under the restrictions, NewDay and Nations Lending will still be able to issue Ginnie Mae-backed securities, but only in “custom pools” that will not be mixed with loans from other lenders. These bespoke stocks are likely to fetch worse prices from bond investors.

When asked about the restrictions, Ginnie Mae did not confirm the identity of the lenders in question, but said action had been taken.

“We continue to take steps to ensure that pools with prepayment speeds that do not meet market norms are not included in our multi-issuer security,” said Michael Bright, Ginnie Mae’s executive vice president and chief operating officer, in a statement HousingWire provided.

“This ensures the integrity of our bonds and strengthens the support they offer veterans and other homebuyers,” added Bright. “This enforcement of the program is a direct part of Ginnie Mae’s mission, and constant monitoring is part of Ginnie Mae’s business.”

It all began last year with a loan churn investigation, stimulated by a letter from Senator Elizabeth Warren, D-Mass., A report from the Consumer Protection Office over complaints from veterans about VA mortgage refinancing.

Warren’s letter alleged that there may be lenders who “aggressively and misleadingly market the refinancing of mortgages sponsored by the Department of Veterans Affairs, and generate fees for themselves at the expense of veterans and American taxpayers.”

Ginnie Mae and the VA investigated the issue, which eventually led to action against NewDay and Nations Lending.

In a detailed statement, NewDay denied being involved in the loan churn, saying that she had made recommendations to both Ginnie Mae and the VA that “could virtually end the loan churn”.

Included in these proposals is the requirement that a VA refinance have a “tangible” benefit, a requirement that was also made in a earlier this year by Warren, Senator Thom Tillis, RN.C. and 10 other Senators proposed bill is included.

According to NewDay, Ginnie Mae’s suggestion “unfortunately” was not implemented.

“NewDay is proud of its proven track record of providing veterans with access to their VA home loan benefits. NewDay will continue to release Ginnie Mae II MBS Custom Pools, “the company said in a statement.

“Our balance sheet is absolutely clear – NewDay is not converting any veteran loans. We are a staunch advocate of measures to end the shameful practice of lending, ”added NewDay.

“The policy changes recommended by Ginnie Mae will do virtually nothing to halt the unprincipled practice of veteran loan churn, but in all likelihood they will force the elimination of much-needed benefits and financial services for tens of thousands of veterans – especially those with poor credit ratings have to fight. “, NewDay continued.

“NewDay has always met all the requirements of the MBS Guide. Our credit default rate is less than one percent, which is well below the five percent allowed in the MBS guide, ”NewDay concluded. “NewDay’s loan default rates are low due to our state-of-the-art predictive analytics and a disciplined underwriting process, all of which help protect our loan portfolio.”

Nations Lending also responded to Ginnie Mae’s move.

Again from Bloomberg:

Cheryl Lieber, Chief Administrative Officer of Nations Lending, said in a statement that the company recently underwent a routine examination by the Department of Veterans Affairs with no issue and that the company has no issues with its VA loan program. She said the discussion with Ginnie Mae related to the performance of loans in a particular pool and denied that it related to the nations’ issuance of VA-covered mortgages.

“We are confident that the matter will be successfully resolved in the near future,” said Lieber.

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