What is "mortgage churning" and how does it affect VA Loans?

Eric Dehm
February 26, 2018 - 10:29 am

(U.S. Army Photo by Scott T. Sturkol, Public Affairs Office, Fort McCoy, Wis.)

A recent announcement from the Government National Mortgage Association, better known as Ginnie Mae, put lenders dealing with VA home loans on notice. In essence, the message was this: the predatory practice of mortgage churning must come to an end. 

The announcement was lauded by veterans organizations, in particular the American Legion, which made addressing the mortgage churning issue one of their top legislative priorities for 2018. So, it would seem that Ginnie Mae's announcement was a victory for veterans who currently have, or might pursue in the future, a VA home loan.

That's great...but what is mortgage churning exactly? And why is it bad for vets?

To get the answer to that question, we spoke to Army veteran, former Ginnie Mae President, and Chairman Emeritus of NewDay USA, Joe Murin. He told us that churning begins after a vet obtains a VA loan, and eventually is bombarded with mailings or calls from the lender pushing them to refinance. While refinancing a loan can benefit a homeowner, that's not always the case, and it's typically not something that should be done repeatedly or often. 

"The 'churning' is the act of being able to take the individual's VA mortgage, repeatedly refinance it and putting fees on top of fees" Murin said during an appearance on the Morning Briefing radio show. "That, to us, is a deplorable, deplorable act against our veterans. So, that's what Ginnie Mae is trying to stop, and I absolutely commend them for trying to do this."

Murin says that at face value, even a refinance that isn't a good idea can appear to be beneficial. The disconnect typically comes with viewing things short-term versus long-term. If you can take money off of your monthly payment it means more cash in your wallet, which can distract the homeowner from the additional fees that start to pile up with each refinance.

"The veteran has to be aware that every time they're approached for this kind of action to occur with their mortgage, they need to take the time to understand what it really means," Murin said. "Because all they could be doing is digging a bigger hole for themselves."

(Photo courtesy NewDay USA

The prospect of deepening debt is dangerous for any homeowner. Interest compounding on unpaid fees could push the initial lowered monthly payment to an even higher level than it was to begin with. That kind of negative movement might lead to financial struggles up to and including losing the house, typically a homeowners most valuable asset. It's clear that Ginnie Mae is trying to address the issue, as is Congress with senators Warren and Tillis recently introducing the "Protecting Veterans from Predatory Lending Act of 2018" bill in January. Still, until laws and rules are changed to prevent it, veterans are responsible for doing their homework to ensure they don't fall victim to a predatory lender.

Luckily there's an organization that's specifically set up to address the questions, that organization? The VA.

"They're very approachable and very reachable," Murin said of the VA's home loan specialists. "That's a whole group of people that deal with these programs and want the veteran to call them, want them to contact them and want to know what's going on."

Another place to look for guidance and assistance are the Veteran Services Officers of the major VSO's including the American Legion, VFW, and AMVETS