Veterans beware! Some mortgage lenders are trying to take advantage of you
US government agency Ginnie Mae and the VA have developed a task force to investigate the more than 1800 complaints about lender harassment of veterans trying to get them to refinance their current mortgages. There are several lenders that are suspected of participating in attempts to “churn” veterans; in some cases as early as only 6 months and 1 day after their initial home purchase closed. (Churning is defined as excessive trading by a broker in a client’s account largely to generate commissions. Churning is an illegal and unethical practice that violates SEC rules and securities laws.)
In addition to mortgagors calling prior clients directly, you’ve probably seen the commercials urging veterans to refinance their current mortgages with lures like “Cash out the equity in your home and get up to 100% of the current value.” Clearly the commercials don’t tell you that every time you refinance your mortgage, it costs potentially thousands of dollars in closing costs, and could increase your mortgage rate as well. This is only a good deal for you IF you really need that cash equity right now. Odds are your mortgage rate is lower than current rates, and that you are not aware that those closing costs will be added to your new loan balance. But for the lender, this is another commission; so all too often the calls are coming from the mortgage company that financed your initial purchase.
It has been reported that these lenders are very aggressive in their marketing tactics to veterans and active military families sometimes calling often even if you have already declined their intial offer. If you have received any such calls, or begin to receive such calls, please contact the Consumer Financial Protection Bureau so the task force has a record of which lenders are engaged in this practice.
If you don’t really need the money, please be tough and tell the lender to not call again. A refinance will raise your monthly payments and will add a couple thousand dollars or more to your mortgage. Also, the longer you pay on your mortgage, the greater the amount of the payment that is going towards paying down the loan. Each time you refinance, you’re starting that clock all over again.
It’s important for every home owner to remember that the housing market is cyclical, just like the stock market. Values will drop at some point. What if you max out your financing to the current value and then need to sell when your home value is under water?
Currently anyone who has owned their home a couple years or so are sitting on equity; potentially a lot of equity depending on where you live. That’s money in the bank for you when and if you need it at a later date.
Generally we recommend that you refinance your mortgage only if you need to take cash out or if you are able to reduce your monthly payments or if there has been a change in ownership (such as due to a divorce or an inheritance, or transfer of ownership among family members). Otherwise, leave that equity where it is working for you.