Mortgage experts from within and outside of the Veterans Affairs Department spoke with House lawmakers Wednesday about what they consider a troubling amount of mortgage “churn”: Many VA-backed loans are being refinanced, some very shortly after they’re signed.
Some borrowers may have good reasons to refinance: Better rates may be available, or a cash-out loan may suit their financial situation. But for most VA loan users, especially those who’ve just closed on their new home, refinance solicitations can lead to problems.
New regulations are planned for later this year to better monitor this lending practice. In the meantime, here are five ways to keep your guard up:
1. Read everything. A November 2016 report by the Consumer Financial Protection Bureau included multiple complaints from VA loan-holders about refinance solicitations. A common theme: Promises in big letters, problems in the fine print: Some “low, low interest rates” went up once the conditions were factored in, and one refinance used a homeowner’s escrow account to pay down the loan balance, then started charging the borrower to rebuild a new escrow account.
2. Ask anything. If the fine print (see above) is confusing, don’t just nod along with what the lender tells you. Seek clarity on any points of confusion, and if you feel like the lender’s representative is moving too fast, stop the process cold. And be sure to confirm with your lender that you qualify, in full, for any program being advertised. If you don’t, expect some fees to pop up late in the process.
3. Don’t get caught up. A typical borrower concern, per the CFPB report, came when red flags shot up just prior to signing, after the lender had run the borrower’s credit. Faced with a higher rate or a potential ding on their credit score, at least one borrower reported going through with the transaction, worried that changing leaders would be too complicated. That’s not true, the CFPB advised: Running your credit has a minimal effect on your score, and having it run multiple times during a given window (at least two weeks, sometimes longer) while shopping for a new mortgage rate will count as a single inquiry.
4. General scam awareness. Check out our refinance-scam tip sheet, including advice from the Better Business Bureau.
5. Get educated. Along with Military Times’ coverage of the issue, check out this from the CFPB (written by Holly Petraeus), learn the basics on VA’s Interest Rate Reduction Refinance Loans, and get briefed by the Federal Trade Commission on all types of mortgage scams.