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What’s an ‘Outlier’? An ‘Outlier’ is considered a person or thing differing from all other members of a particular group.
GNMA considers nine major mortgage lenders as ‘outliers’ because Ginnie believes that the activity of these lenders differs from others. Ginnie Mae believes these lenders may be churning VA refinances.
Churning is a process whereby the lenders continue to refinance a Veteran’s property providing no real benefit to the Vet. These loans end up in Ginnie Mae pools for investment.
Some veterans were sent misleading advertisements that claim rapid refinances which will allow them to skip mortgage payments. While others have received new loans that cut their interest rate by only a small amount. They are then targeted for another refinance a few months later. This is churning.
The lender makes money, the Veteran’s debt increases and loans are quickly refinanced out of the Ginnie pools where they were originally sold. The latter causing investment losses in the pools, resulting in higher rates for future loans to homebuyers and homeowners, especially first-time buyers. Not so good.
The nine major lenders received notice from Ginnie that they may be forced to issue “custom pools” of Ginnie Mae mortgage-backed securities instead of the traditional Ginnie Mae bonds that most lenders create. These custom pools might be tough to price and trade in view of the projected higher refinance rates.
The lenders say no. They do not churn now, nor have they ever. They are doing their best to serve the needs of Veteran homeowners.
These are the big guys, the big targets. Most buy loans from other lenders and brokers. So, some of the activity may not necessarily be of their own doing.
But, do they check what they buy carefully to ensure these suppliers are not the ones doing the churning? They better.
Some smaller lenders may be the outliers, refinancing the very loans that these larger lenders had previously originated, bought, and sold. Regardless, the process hurts everyone. Even the churner in the long run. Short term profits for long-term problems.
As it usually does, the investigations and enforcement may start with the big guys. Sooner or later, it hits everyone – trickle down enforcement.
Everyone needs to carefully analyze the refis they produce and buy to ensure against any possible perceived process of churning. Not only with VA loans but FHA as well.
Since both of these types of loans go into the Ginnie pools, it’s only a matter of time before the FHA streamline refinances that get scrutinized more closely.
Are you churning? Hopefully, you know or can quickly find out. If you are, you better stop. It only hurts the industry. Another black eye, both professionally and financially.
Carefully analyze the government streamline refis you do and buy to ensure a tangible net benefit to the borrower. If you don’t, you may find that you get carefully analyzed for continuance in the Ginnie program or the purchase of your loans by one of the big guys.
