Protecting our Protectors: Unscrupulous Lending Tactics Exposed

Re-entry into civilian life is a difficult thing for ex-service personnel with 27% saying that adjusting to ordinary life is hard. There are many reasons why transitioning is not easy ranging from medical to economic constraints. Another issue that veterans face is housing. Lack of finance is a stumbling factor preventing veterans from purchasing a home. In addition, for years, veterans who are looking to buy or refinance a property were victims of unethical lending schemes such as exorbitant fees, high interest rates, and disadvantageous refinancing plans. The federal lending reforms in 2018 put a stop to these unfair practices.


Military personnel should know about lower interest rates

A report by Rep. Katie Porter of Irvine was recently released and indicated that the protection offered to veterans and active-military personnel to purchase housing was short-lived. Under current rules, veterans who want to buy a home can avail of US Department of Veterans Affairs (VA) loans with favorable conditions meaning, no down payment, no private mortgage insurance (PMI), flexible credit requirements, and low interest rates, among others. For existing loan holders, there is a more attractive option, the VA IRRRL. It is a refinance alternative that allows owners to take advantage of lower or better interest rates.  The new term offers benefits in the form of lower monthly payments.

Unfortunately, two lending practices that are viewed as unfair to all consumers are rising steadily among veteran participants since July 2020. The cashout refinancing which enables homeowners to make use of their equity are conducted in less favorable terms. ‘Loan churning’, a practice where the homeowner is advised to refinance a loan after it is issued, preys veterans incurring repeat closing costs that benefit lenders. The 2018 reforms assisted in putting an end to these practices. Later, the Trump administration and Congress also passed regulations to cut mortgage churning and improve protection for veteran borrowers. One of the new rules was the 6-month ‘cooling’ period before refinancing any new mortgage.

Putting a Stop to Unscrupulous Tactics

Lenders who employed these unfair tactics were punished when the reforms were done in 2018. However, Porter says that these creditors are back at it again, employing the same schemes and charging tens of thousands of dollars more than their competitors for the same types of loans. Thus, the representative is calling for new reforms to prevent these practices from taking place. She also urged regulators to immediately suspend NewDay USA and the Federal Savings Bank, two VA lenders that are mentioned in the report.

The latter’s chief executive, John Calk, issued a statement saying that his leadership team hadn’t had the time to review the Porter report and could not, therefore, comment. On the other hand, NewDay USA came up with a company statement that refuted some of the claims in the report. It said that its interest rates are higher than the others because it offers cash-out refinance loans to veterans with lower average credit scores, a market that is overlooked by other lenders. 

While the VA program has assisted many veterans and their families achieve their dream of owning a home, it has become a rich environment for predatory creditors that allegedly push interest rates up, encourage quick refinancing, and collect extra fees. Hence, 7 representatives of Congress led by Rep. Levin asked the VA, Ginnie Mae, and the Consumer Financial Protection Bureau to investigate and share findings and actions taken regarding problems flagged in the Porter report.