Congress needs to protect veterans from bad actors in VA home loan refinancing
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There is no better way for America to honor the brave men and women who have served our nation in uniform than recommitting ourselves to fulfilling the promises we made to them. We do this by continuing to push for reform and modernization at the VA, and by assisting veterans during their transition back to civilian life.

One of the most important tools to help veterans during the transition is the VA home loan program, which was designed to provide veterans and servicemembers with the opportunity to purchase their own home through a VA insured mortgage from a private lender. VA loans have lower credit score requirements than other mortgages, and often don’t require down payments. Since its inception, the program has been very successful, insuring more than 20 million home loans, helping veterans become homeowners as they raise their families.

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Unfortunately, a small number of lenders are abusing the program today by utilizing misleading advertising tactics and engaging in a practice known as “churning” – the refinancing of a home loan over and over again to generate fees and profits for lenders.

Veterans and servicemembers have increasingly become targets of aggressive marketing campaigns from certain lenders, receiving fancy, and often misleading, materials urging them to refinance their mortgages and take advantage of benefits like lower monthly payments, lower interest rates, and no out-of-pocket expenses.

Many of these offers are too good to be true. While the slightly reduced monthly rates and payment amounts of refinanced mortgages might look good on first glance, they can also result in higher total loan amounts due to the large fees that lenders charge and tack on to the loan principal, often to the tune of thousands of dollars. This important caveat hidden in the fine print can net a healthy profit for the lender at the direct expense of veterans.

Predatory lenders are also encouraging veterans to refinance even after they recently refinanced their loans. There are plenty of reports of lenders successfully convincing families to refinance several times over the course of just a few months, collecting fees each time.

The net result of “churning” can put families in a worse financial position than they started off, including turning their home loan into negative equity where the veteran owes more than their house is worth. This should not be happening to veterans who earned the benefits provided by the VA home loan program.  As we celebrate Veterans Day, we should work to make sure this benefit is truly beneficial for veterans and their families.

Fortunately, the federal government has started to take steps to curb this type of shameful predatory lending. The VA and the Government National Mortgage Association (also known as Ginnie Mae) recently created a task force to address mortgage financing issues facing veterans. The task force will specifically focus on misleading advertising and uneven mortgage financing proposals. 

Congress also needs to play an active role in helping to protect veterans and their families. It’s a commonsense policy initiative that can and should be bipartisan, and one that I look forward to leading.

There are several legislative remedies worth exploring, including implementing a fee recoupment standard that ensures fees paid by borrowers for refinancing are repaid in a reasonable time period through lower payments. Another is by making sure that terms for refinanced loans insured by the VA represent a net tangible benefit for veterans with a lower interest rate and do not harm their financial well-being by unnecessarily loading large fees onto loan balances and pushing the borrower into negative equity. And we also need to make more resources available to veterans and their families to spot the warning signs of misleading advertising, and ensure that lenders are clearly disclosing all aspects of loan terms to veterans.

If concrete steps aren’t taken to help protect veterans, the problem will not only continue, but get even worse, negatively impacting the financial well-being of thousands of veterans who were willing to make the ultimate sacrifice for our nation. That’s simply unacceptable. Congress must act and fulfill its promise to provide veterans and their families with an effective, affordable, and secure home loan program.

Tillis is a member of the Senate Veterans’ Affairs Committee.