Ginnie Mae has imposed restrictions on NewDay USA and Nations Lending as part of efforts to address loan churning, Bloomberg News reported.
In February, Ginnie Mae notified issuers with higher-than-usual prepayment speeds to deliver a corrective action plan. If an issuer is unable to do so, Ginnie Mae said it may impose restrictions on access to multi-issuer pools. An issuer would thereafter only have access to custom pools.
A person familiar with the matter told Bloomberg that Ginnie Mae has restricted NewDay USA and Nations Lending from issuing Ginnie Mae bonds that are intermingled with loans from other lenders.
While the two lenders can still issue securities backed by Ginnie Mae despite the restrictions, they can only do so in custom pools where the loans are not mixed with those from other lenders. Bloomberg said prices for the bespoke securities are likely to get worse.
In a statement, NewDay USA said that it would continue to issue custom pools of Ginnie Mae MBS, and denied churning veteran loans. The company also said that in October, it offered Ginnie Mae and the Veteran’s Administration recommendations to help end loan churning, but that none have been implemented.
“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,” the company said.
Meanwhile, Cheryl Liber, chief administration officer at Nations Lending, said in a statement that the company is confident that the matter will be successfully resolved. In a statement, Lieber said the company did not have any problems during a recent examination by the Department of Veterans Affairs, adding that Nations Lending does not have issues with its VA loan program.