U.S. Department of Veterans Affairs (VA) home loans account for more than 10 percent of all mortgages in America and also tend to have the lowest delinquency rates. The only time most people hear about VA loans, however, is when there is a problem, like recent reports about veterans falling prey to loan churning, which is the practice of pressuring veterans to refinance loans to generate fee revenue for lenders. We spoke with Jeffrey London, director of the VA’s Loan Guaranty Service, to get a read on the current state of the program and the VA’s efforts to fight churning.
What is the current state of the VA loan program?
The last two years, we’ve had back-to-back record years. Specifically, in fiscal year 2017, we guaranteed over 740,000 loans that totaled about $188 billion. It was a record year for purchase loans, where we guaranteed over 380,000 [loans] totaling about $99 billion. That definitely shows how more and more veterans and service members are utilizing the program.
Some of the other numbers I want to get into … is the fact that if you look at the Mortgage Bankers Association data, VA enjoys the lowest seriously delinquent rate and foreclosure rate in the industry, and we’ve enjoyed that through the first three quarters of 2017. … This is not just something that happened recently. This is something that has been occurring in our program for several years.
What accounts for that?
One of the ways we’ve been able to realize those numbers in delinquencies and foreclosure rates is that right around the time of the mortgage crisis, we implemented a new process and system called VALERI — the VA Loan Electronic Reporting Interface. … The VALERI system allows us to monitor the loan performance for every outstanding loan, and as soon as the loan goes into default, VA gets tons of data to evaluate whether or not the servicer is helping veterans to get their loan current and to help them avoid foreclosure as well.
What is VA doing to combat the serial refinancing, or “churning,” problem?
The policy changes that Ginnie Mae implemented — first in October of [2016] … and even their most recent All Participants Memorandum [APM] that was published [in early December] — we collaborated with Ginnie Mae on both of those policy changes.
We actually established a six-month seasoning requirement in [2014] and also said that any new costs that were associated with a loan needed to be recouped within 36 months. Unfortunately, it did not have the impact we intended. Because VA would still guarantee a loan that met our other requirements, it didn’t have the impact that we wanted it to have. That’s in part what led us to working with Ginnie Mae.
Have you seen any improvements from these efforts?
You can’t correlate everything with the APM because we have an increasing interest rate environment, and that certainly has some impact on the slowdown of refinances, but … before the APM we were averaging in VA over 35,000 of these loans a month, and toward the end of the fiscal year, we saw that number decrease down to less than 8,000 loans a month. And we also saw the number of veterans affected by these churning practices decrease over 60 percent … from [fiscal year] 2016 to [fiscal year] 2017.
Any future plans to continue to combat the churning issue?
While the numbers seem to be improving, there’s certainly more work to be done. Back in October, we, working with Ginnie Mae, formed a VA loan-refinance task force, where we are looking at this issue more closely.
What we’ve been focusing on [is] what potential policy changes we could make to help veterans avoid this situation and to also lessen the impact to all of our stakeholders throughout the program. But in doing so, we had to look at things from not only the veterans’ perspective — which is certainly the most important focus that we have — but we also had to look at what impact any changes would have on the lending community and the mortgage investors as well.
So, we had to take a very measured and methodical approach to what we need to do, and we’re very close to coming to a conclusion on that evaluation and making some program changes.
So that is something we’ll see in 2018?
Absolutely. And if I have my way, early in 2018.
