At least eight lenders that issue Veterans Affairs loans have been hit with federal subpoenas, Politico reported Tuesday.
The move commences an investigation by the Department of Veterans Affairs Office of Inspector General and the U.S. attorney in the Eastern District of New York into whether lenders are overcharging military veterans for mortgage loans.
While spokespersons for both offices would neither confirm nor deny that an investigation was underway, four people with knowledge of the subpoenas shared details with Politico.
According to unnamed sources, eight lenders – although likely more – have been asked to hand over files on the VA loans they originated from 2013 to 2017 and must answer questions regarding quality control and loan audits.
Among the documents requested are those related to the Interest Rate Reduction Refinance Loan – or IRRRL – program, which enables lenders to refinance VA borrowers without an appraisal or additional underwriting.
Since last fall, the Department of Housing and Urban Development, Ginnie Mae, and the Department of Veterans Affairs have been looking into whether certain lenders are aggressively targeting service members and military veterans for quick and potentially risky refinances.
The investigation led to some lenders being booted from Ginnie Mae’s primary mortgage securities platforms, and other lenders being restricted for questionable conduct.
In May 2018, Ginnie Mae confronted the problem head on by issuing new rules governing VA refinances designed to crack down on abuses. But it seems the agency may not have gone far enough, as allegations continued to swirl that veterans were being aggressively pursued and overcharged.
The situation recently erupted into a rather nasty dispute among mortgage industry players. Anthony Casa, the head of the mortgage broker trade group the Association of Independent Mortgage Experts, publicly accused several major retail lenders of overcharging veterans on their mortgages, causing some of them to passionately hit back.
Aware that perhaps more needs to be done, Ginnie Mae announced Friday that it was considering changing the rules yet again to further restrict VA refinancing, particularly those that allow veterans to raise their rate in order to take cash out.
Ginnie said the practice has become so prevalent that it is negatively impacting its mortgage bonds and solicited input from the industry as to how to proceed.
