Ginnie Mae Investigating Churning Used Against Vets and Servicemen and Women

Ginnie Mae, the government-owned corporation which lends money for home purchases to qualified people at more affordable rates, is conducting an investigation into unethical practices involving lenders possibly pressuring veterans and other members of the military into mortgage refinancing which they do not need.

The corporation is able to keep its costs down by guaranteeing repayment on $2 trillion worth of mortgage bonds, even when the borrowers default on the underlying loans. Ginnie Mae is investigating because the securities backed by them support a number of federally sponsored housing projects, including a few which loans are made via the Department of Veterans Affairs.

Ginnie Mae is afraid that some lenders are unethically putting pressure on veterans and military personnel to refinance loans that are part of Ginnie securities. According to Michael Bright, acting president of Ginnie Mae, lenders are pestering consumers relentlessly to try and convince them refinance. This behavior, which is called churning, creates high fees for the lenders and harms the servicemen and women by leaving them with larger loan balances in the end.

Congress is starting to take notice of the practice. Senator Elizabeth Warren, one of the finance industry’s most vocal critics, wrote to Bright, asking him if some of these lenders were abusing the Ginnie Mae program by using strong-man marketing tactics.

Bright answered Warren that he launched a task force to look into churning and any other abusive practices engaged in by lenders who were approved to issue Ginnie Mae-backed bonds. It is possible that the agencies could block the lenders from their programs if they believe restrictions on refinancing can’t be imposed or will not work.

“There are clearly some Ginnie Mae-approved issuer companies who appear to be taking advantage of the VA program to aggressively market and churn loans in our securities,” Bright wrote to Warren.