Active-duty military troops and veterans are being grossly overcharged for VA home loans, according to Democratic activist Lisa McCormick, who called on federal regulators to suspend or ban alleged greedy loan companies as well as strengthen oversight of lenders.
McCormick made her comments after reading a report that shows predatory mortgage lenders are still exploiting military borrowers, despite years of efforts to prevent such abuses.
One of New Jersey’s most outspoken progressive Democrats, McCormick said AWOL: How Watchdogs Are Failing to Protect Servicemembers from Financial Scams is a report that analyzes new government data and shows that NewDay USA and The Federal Saving Bank, two loan companies that have been punished in the past for misconduct, charge veterans tens of thousands of dollars more than their competitors.
The report was compiled by Congresswoman Katie Porter (CA-45), a longtime consumer advocate.
“It is despicable that corporate executives would prey on veterans and military families to line their pockets,” said Porter. “My report calls out the lenders that are continuing to single out vulnerable military borrowers for overpriced, cash-out refi mortgages. The Administration has a duty to step in and prevent these scams from happening.”
NewDay USA and The Federal Savings Bank present themselves as helping veterans, but they engage in the kinds of practices that the Veterans Affairs Department (VA) once called “subprime lending under a new name.”
The U.S. government is in an ongoing fight against predatory VA loans, but McCormick said the government is losing as greedy financial firms get more creative and target veterans and military families.
“In recent years, scammers have enticed unsuspecting consumers to buy into overpriced cash-out deals and loan churning, when lenders pressure borrowers to refinance their mortgages early and often against their interests in order to harvest a second round of closing costs,” said McCormick.
“Cash-out refinancing, in which homeowners are encouraged to cash in some equity on their homes but are left owing significantly more money, is often accompanied by unfavorable terms,” said McCormick. “Loan churning is another scam, in which a homeowner is urged to refinance a mortgage soon after it is issued as a way to generate repeat closing cost income for the lender.”
Despite a 2018 law aimed at reducing churning and strengthening consumer protections for veteran borrowers, the number of predatory loans remains significant, according to Porter’s analysis.
Read the full report “AWOL: How Watchdogs Are Failing to Protect Servicemembers from Financial Scams” HERE.
“Churning VA loans hurts all veterans,” said Andrew Pizor, a staff attorney at the National Consumer Law Center. “The VA and Ginnie Mae have taken important steps toward addressing this abuse, but more is needed. We also urge the CFPB to assist by investigating abusive lending practices. The National Consumer Law Center thanks Representative Porter for her work to help veterans.”
“Military families face a housing crisis on multiple fronts – one prominent challenge being predatory lending behavior,” said Besa Pinchotti, CEO of the National Military Family Association. “Even as military families continue to serve around the globe, they must remain vigilant at home, deciphering near-constant loan churning attempts and too-good-to-be-true offers.”
“The reality facing military and veteran families using VA home loan benefits if that their dream of home ownership can turn into nightmare,” said Lisa McCormick, a leading progressive activist in New Jersey. “The exploitation of military service personnel who earned housing or loan benefits is harmful to the economic well-being of armed forces families and it must be stopped.”
“New Day consistently charges veterans exorbitantly high prices for VA guaranteed loans, including higher origination fees and interest rates, when compared to other VA lenders,” said Jason Richardon, Director of Research and Evaluation at the National Community Reinvestment Coalition. “Since large banks have chosen not to make VA loans, veterans have only a small number of lenders from which to choose. There is no conventional mortgage product that offers Veterans the same path to homeownership that the VA loan program does. It is regrettable that New Day has used this opportunity to leverage its outsized role in the market to push a higher-cost product rather than putting veterans on the path to homeownership with a lower-cost loan.”
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