Ginnie Mae imposes restrictions on 2 lenders in anti-churn drive

by Francis Monfort05 Apr 2018

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.

 
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COMMENTS

  • by Mike Paluszek | 4/6/2018 10:23:15 AM

    My name is Mike Paluszek. I’m with DKC the public relations firm that represents BBMC Mortgage. I asked Todd Jones BBMC's president for his perspective on the Bloomberg story. Here’s what he told me: Bottom-line up front, the actions taken by Ginnie Mae against specific lenders will have a positive impact for veterans and the responsible lending community as a whole. In this most recent line up of restrictions, Ginnie Mae has identified two very specific and unique models that led to VA mortgages being originated with little concern for the veteran’s best interest. In one model, aggressive and perhaps misleading direct mail was used to convince veteran borrowers to take out mortgages that had little to no benefit other than increased profits for the lender. In another model, maxing out allowable rates and fees to veteran borrowers led to greater run-off rates from the blended pools, when these excessive run-off rates were brought to light, a strategy of aggressive remarketing was implemented resulted in a similar “churn” effect. Despite a generally skeptical impression of harsh regulatory action (as it often misses the intended target, and limits access to or increases costs of capital for borrowers), the concept of letting specific lenders have their custom pools “stand on their own two feet” will absolutely protect the larger infrastructure, will keep the cost of funds lower for veterans, and will specifically force lenders to bring their margin structures and/or marketing tactics in line with the majority of the industry who strive each and every day to serve our veterans as fiduciaries.

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