Residential: VA lending restrictions continue to evolve

Refinancing of Department of Veterans Affairs (VA) backed loans has been the subject of legislation, regulation and supervision over the past year. Both the VA and Ginnie Mae have continued to revisit the issue, seeking new ways to curb aggressive marketing and rapid turnover in refinance loans to service members. “Considering Ginnie Mae’s recent outreach to the industry on how best to tackle higher than anticipated prepayment speeds, we expect to see more changes and guidance in 2019,” said Stephanie Schader, Vice President of The Collingwood Group.

Even with last year’s VA churning restrictions mandated by the Economic Growth, Regulatory Relief and Consumer Protection Act and prohibitions on certain lenders’ involvement in the mortgage-backed securities (MBS) program, Ginnie Mae asserts that further action is needed.

Ginnie Mae solicited stakeholder feedback on another round of policy changes in a recent Request for Information (RFI). The RFI proposes either a cap on VA cash-out refinances with a loan-to-value (LTV) ratio above 90% in the multiple issuer pool (MIP), or developing a custom pool for these loans. Both approaches are aimed at reducing the volume of higher LTV cash-out refinances, which have been linked to elevated prepayment speeds. The RFI states, “Ginnie Mae’s concern, then and now, is that investor trepidation about this activity will negatively impact investor confidence in the performance of the securities and the relative price that they receive in the market.”

“This is something that Ginnie Mae has never done before,” Ginnie Mae Acting President Maren Kasper said in a recent interview with National Mortgage News about the RFI. “We’ve never put out a request for input. Ginnie Mae has always just made policy. This time, we want to hear from all stakeholders. We want to hear from issuers. We want to hear from investors and anyone that has a view on this to make sure that we are striking the right balance.”

At the Mortgage Bankers Association’s recent Secondary Market Conference in New York, Kasper reiterated Ginnie Mae’s commitment to the issue, saying, “We are taking this seriously and doing this right.”

“It’s encouraging to see Ginnie Mae requesting the industry’s input on how to best mitigate unexpectedly high prepayment speeds, a trend that has continued despite the fact that we’ve had a rising interest rate environment for much of the last year or so,” said Schader.

Alongside Ginnie Mae, the VA is reportedly cracking down on certain refinance activity. Politico recently reported that several lenders have been issued subpoenas by the VA to provide additional information on delinquencies and payments on VA-backed loans. Although the VA has yet to comment, at least eight lenders are under investigation, with particular attention to abuses of the VA’s Interest Rate Reduction Refinance Loan program. For its part, the VA reports that it is drafting a rule that will provide increased transparency about the range of enforcement actions it can take against participating lenders – and under what circumstances it will take them.

This refinance issue went largely unaddressed at the VA’s Annual Lenders Conference in April. “We may get another update at Ginnie Mae’s upcoming summit in June,” said Schader. The annual summit will take place in Washington, DC, on June 13 and 14 and is likely to cover recent actions as well as some of the proposals under consideration, including a government lending panel with representatives from the VA.

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