A California congresswoman has released a report showing how predatory mortgage lenders continue to exploit military borrowers, despite years of efforts to prevent such abuses.
Congresswoman Katie Porter’s (D-CA) report analyzes new government data and concludes that NewDay USA and The Federal Saving Bank, two lenders that have been punished in the past for misconduct, charge veterans tens of thousands of dollars more for the same loan than their competitors.
“It is despicable that corporate executives would prey on veterans and military families to line their pockets,” Porter said in a release.
The report, released Aug. 3, alleges that the lenders “continue to aggressively market cash-out refinancings with fees and interest rates that could cost borrowers tens of thousands of dollars more over the life of the loan compared to other lenders.”
In an online statement, New Day USA fired back at those allegations.
"NewDay USA's mission is to serve our nation's veterans and we're proud of the work we do to help them achieve the dream of homeownership," the statement reads. “We're committed to continuing to help veterans and their families gain financial security by providing them the best possible service."
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Federal Savings Bank officials have said they have not had the opportunity to read the entire anaylsis.
According to Porter’s report, the number of predatory cash-out VA loan refinancings went down in both 2017 and 2018 due to the actions of federal regulators and Congress. Those numbers are up by 50% since July of 2020, the report found.
The U.S. government is also in an ongoing fight against predatory VA loans, Porter said in a release. In recent years, scammers have focused on overpriced cash-out refinancings and loan “churning,” when lenders pressure borrowers to refinance their mortgages early and often against their interests in order to harvest a second round of closing costs.
Despite a 2018 law aimed at reducing churning and strengthening consumer protections for veteran borrowers, the number of predatory loans remains significant, according to Porter’s analysis.
“Churning VA loans hurts all veterans,” said Andrew Pizor, a staff attorney at the National Consumer Law Center. “The VA and Ginnie Mae have taken important steps toward addressing this abuse, but more is needed.”
While the Porter report makes it clear that not every cash-out refinancing is predatory, the terms of some do leave borrowers financially worse off afterward. The report found that NewDay borrowers paid the highest average interest rate in 2020 when compared to the 10 of the top providers of VA cash-out refinancings.
The higher interest rates could have been avoided if those borrowers had used the VA streamline refinance option. The report found.
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“The disparity suggests that service members, veterans and military families looking for cash-out loans at NewDay may be specifically targeted and exploited for profit,” reads the report.
However, New Day argued that its cash-out refinancing borrowers’ credit scores were was 35 to 75 points lower than that of other lenders.
“As is common practice, lower credit scores indicate greater risk to the lender and require higher interest rates,” reads the response from New Day.
Seven members of Congress have also signed a letter asking federal regulators to review Porter’s analysis.
“We should all make sure that VA lenders don’t abuse this program to their own advantage and undermine veterans’ ability to afford and maintain homeownership,” the letter reads.
Reach Julia LeDoux at Julia@connectingvets.com.
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