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Ginnie Mae temporarily suspends three lenders

One of the nation’s largest Veterans Affairs (VA) lenders, Freedom Mortgage Corporation, and two other national companies, NewDay USA and SunWest Mortgage Co. Inc., have been temporarily banned from issuing VA loans into Ginnie Mae’s regular securities pools, Ginnie announced.

The move follows an investigation into so-called loan churning involving VA streamline refinance loans. Last year, some companies were accused of aggressively refinancing VA loans in order to gain origination fees and of allegedly refinancing some loans with little justification from a borrowers' perspective. The refinancings in question, for example, did not necessarily provide enough of an interest rate savings for the military veteran or their families to justify the refi fees. As part of its analysis of the problem, Ginnie compared the prepayment speeds of loans issued by its various lenders to determine if some lenders were refinancing loans faster than the norm.

valoanchurnThe pooled VA loans originated by the three companies now facing a temporary ban by Ginnie allegedly had faster average prepayment speeds than the pooled loans issued by their competitors, indicating that these three companies were refinancing these loans and taking them out of the Ginnie guarantee pools at a faster rate than the average, according to Ginnie. 

“The integrity and market predictability of Ginnie Mae securities is essential to our mission to support the U.S. housing market,” said Michael Bright, Ginnie Mae executive vice president and chief operations officer. “The announcement regarding New Day USA, Freedom Mortgage Corporation and SunWest Mortgage Company Inc. underscores our commitment to that mission. “

NewDay issued a lengthy statement denying any wrongdoing and noting its efforts to provide mortgage credit to veterans. The company said roughly one quarter of its customers come to NewDay after being denied by major banks. NewDay also touted its low default rates as evidence that it is producing safe loans through rigorous underwriting.  

"Our record is absolutely clear: NewDay does not churn veteran loans," the company said. "We have been an outspoken supporter of measures to end the shameful practice of loan churning."

The company said that in October it recommended that Ginnie and the VA stop allowing all lenders to charge loan-origination fees in streamline refinances, and only allow veterans to do just one streamline refinance a year. NewDay also said it recommended that the VA establish a net tangible benefit test, ensuring that the loans provided enough interest rate savings to justify the loans.

“Policy changes recommended by Ginnie Mae will do virtually nothing to stop the unprincipled practice of veteran loan churning, but in all likelihood will force the elimination of much needed benefits and financial services for tens of thousands of veterans – especially those veterans struggling with poor credit," NewDay said. 

Freedom's Chief Executive Officer Stanley Middleman issued a statement on Thursday. 

"Freedom Mortgage stands firmly against the practice of loan churning and is committed to acting in the best interests of our nation’s veterans," Middleman said. "For this reason, we welcome the increased transparency for MBS [mortgage-backed securities] investors, and are completely aligned with [Ginnie Mae] in this pursuit," he continued. "Over the last several months, we have been working closely and cooperatively with [Ginnie] to make sure that Freedom’s prepay speeds are in line with other market participants."  

Middleman said Freedom will continue to offer its full line of loan products. 

SunWest didn’t return a request for comment.

Ginnie's restrictions on Freedom and SunWest will extend from July 1, 2018, to Jan. 1, 2019. NewDay’s suspension began April 1 and will conclude on Oct. 1 of this year.

Freedom, NewDay and SunWest remain authorized Ginnie issuers and can still issue loans guaranteed by the Federal Housing Administration and the U.S. Department of Agriculture, into regular Ginnie pools, Ginnie officials said. The three companies also are still eligible to pool VA loans into custom Ginnie securities pools. These special pools tend to carry higher interest rates and are thus less competitive.

Before they will be allowed to issue VA loans into the regular pools in the future, however, the companies must demonstrate that the prepayment speeds are consistent with loans from other issuers. The companies also have to provide Ginnie with an acceptable plan deemed sustainable, Ginnie said.

In the same news release, Ginnie put all lenders on notice that it will continue to monitor prepayment speeds. 

Last week, Ginnie also notified lenders that it was changing its eligibility rules for loans guaranteed by the VA to ensure that loans aren’t immediately refinanced. Effective June 1, in order to be eligible for a regular Ginnie securities pool, a VA loan can’t be refinanced until 210 days has passed since the first payment on the original loan, and six full monthly payments have been made on that original mortgage. 

This story was updated to include comments from NewDay USA and Freedom Mortgage Corporation.  


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