Predatory lenders pushing veterans into bad refinances

Federal officials plan to crack down on predatory lending schemes targeting thousands of veterans nationwide.

The abuses involve serial refinancings that generate hefty fees for lenders but leave borrowers in worse financial shape. Lenders are dangling teaser interest rates, “cash out” windfalls and lower monthly payments, sometimes using shady marketing materials that resemble official information from the Department of Defense. Not infrequently, officials say, borrowers end up owing more on their loan than their house is worth.

Officials at the Government National Mortgage Association, better known as Ginnie Mae, say some veterans are refinancing their properties multiple times a year. That’s a result of lenders who aggressively solicit competitors’ recent borrowers to persuade them to refinance again.

The costs to the veterans can far outweigh the relatively modest reductions in monthly payments. Ginnie Mae found many examples where the borrowers switched from a long-term fixed interest rate to an adjustable rate lower in the near term, in addition to a principal increase of thousands of dollars.

A typical pitch was received recently by a veteran and his wife who live in Silver Spring, Maryland. Along with a fake check made out to the veteran for $30,000 — all he had to do to get the cash was sign up for a refinance — were comeons like these: a new 2.25 percent interest rate and up to two months with zero payments.

In small print on the back of the check were key disclosures: The homeowners would have to switch from their 3.75 percent fixed rate to a “3 /1” adjustable rate that could increase 36 months after closing and rise to as high as 7.25 percent. There was nothing about fees or a bigger balance due.

All of the veterans getting these pitches have VA home loans, which are backed by the Department of Veterans Affairs.

In an interview, Michael R. Bright, acting Ginnie Mae president, declined to name the mortgage lenders most aggressively targeting veterans. But he said they face loss of bond eligibility, which would essentially close down their funding source.