Connect with us

News

Some VA lenders are still exploiting troops and veterans, report alleges

Published

on

Troops and veterans in some cases are being “grossly” overcharged for VA home loans, and federal regulators need to suspend or ban alleged bad actors and strengthen their oversight over lenders, according to a new report from the office of Rep. Katie Porter, D-Calif.

The report alleges that NewDay USA and The Federal Savings Bank “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.”

“This report finds that grossly overpriced cash-out refinancings continue to scam veterans,” Porter stated in an introduction to the report released Aug. 3.

The report noted that the actions of Congress and federal regulators in 2017 and 2018 decreased the incidence of predatory cash-out VA loan refinancing. But while the number of these loans decreased in those years, the problematic rates and fees continued, the report stated.

The report’s authors found that while the number of cash-out refinancings did decrease in 2020, it’s on the rise again — up by 50 percent since July, 2020.

“It is despicable that corporate executives would prey on veterans and military families to line their pockets,” said Porter in an announcement of the report, titled “AWOL: How watchdogs are failing to protect servicemembers from financial scams.”

The report “calls out the lenders that are continuing to single out vulnerable military borrowers for overpriced, cash-out refi mortgages. The Administration has a duty to step in and prevent these scams from happening,” Porter said.

“Ginnie Mae should immediately suspend NewDay USA, The Federal Savings Bank, and any other lender with similar lending patterns from originating new cash-out loans,” the report recommended.

Ginnie Mae officials didn’t comment on this recommendation, but in a statement to Military Times emphasized that the government agency “continues to be focused on maintaining the market predictability and integrity of Ginnie Mae securities, which leads to low-cost mortgage financing available to homeowners who use various government-insured mortgage products.”

An American flag is raised at a home, March 19, 2019, at on-base military housing at Naval Station Mayport. (Mass Communication Specialist 2nd Class Devin Bowser/Navy)
An American flag is raised at a home, March 19, 2019, at on-base military housing at Naval Station Mayport. (Mass Communication Specialist 2nd Class Devin Bowser/Navy)

Active-duty members as well as veterans generally qualify for a VA loan. The Veterans Affairs Department doesn’t make the loans; It guarantees them. This minimizes lenders’ risks and reduces their losses in the event of a foreclosure. The lenders set the interest rate and some other costs.

The Porter report also recommended the VA and the Consumer Financial Protection Bureau take additional action to address the issue. In recent years, all these government agencies have taken steps to tighten rules and strengthen monitoring, in order to limit overpriced cash-out refinancings and loan “churning,” where lenders convince borrowers to unnecessarily refinance their mortgages early to get new terms or take out cash, often costing borrowers more in the long run.

“Churning VA loans hurts all veterans,” said Andrew Pizor, a staff attorney at the National Consumer Law Center. While some steps have been taken, more are needed, he said.

As the report notes, not all cash-out refinancings are necessarily predatory. These loans take cash value out of homes, but some loans tend to have bad terms which could leave borrowers worse off after refinancing. Lenders market these loans often to veterans, enticing them to take thousands of dollars out of the equity in their home, to pay off debt, make home improvements, or other purposes. The cash-out loans can be used to refinance a non-VA loan into a VA loan.

In contrast, a VA Interest Rate Reduction Refinance Loan, IRRL, also known as the streamline refinance loan, is typically used to reduce the borrower’s interest rate on an existing VA loan, or to convert an adjustable rate VA loan to a fixed rate mortgage.

The quantity of cash-out refinancings decreased in 2020, both at NewDay and across the VA home loan industry, but the nature of the loans remained the same, according to the analysts. In analyzing the top 10 originators of VA cash-out refinancings in 2020, the analysts found NewDay’s customers were charged the highest average interest rate.

If these borrowers had used the VA streamline refinance with NewDay instead of the cash-out refinance, the analysts found, they would have paid competitive market rates and less than half the up-front costs of a cash-out mortgage.

“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,” the report stated.

NewDay’s response

NewDay USA defended their practices when reached for comment.

“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,” NewDay officials said in a statement provided to Military Times. “We’re committed to continuing to help veterans and their families gain financial security by providing them the best possible service.”

The vast majority of NewDay’s 2020 total loan originations were streamline refinancings and other products; 13 percent were VA cash-out refinancings, according to NewDay officials, which they say is consistent with the rest of the mortgage market.

These two types of refinancings should not be conflated, because they serve different purposes, officials noted. “Cash-out loans offer veterans money in hand to pay off high-interest revolving credit lines, invest in home improvements, or cover other unexpected costs.” Their data shows that customers saved a “weighted average” of $617 per month with cash-out refinancing, officials said. By contrast, streamline refinancings are designed to lower the interest rate on the VA loan, or convert an adjustable-rate VA loan to a fixed-rate mortgage.

In response to the higher fees or interest rates, NewDay noted that the majority of its customers are enlisted veterans, and that NewDay customers’ average credit scores are lower than those of other top lenders. In 2020, the average FICO credit score of its cash-out refinancing customers was 694, which was 35 to 75 points lower than the average FICO score of other top lenders.

“As is common practice, lower credit scores indicate greater risk to the lender and require higher interest rates,” NewDay officials stated. They provided statistics from Ginnie Mae showing NewDay’s customers’ average credit score was 694; Navy Federal Credit Union’s customers’ average credit score was 729; USAA, 738; and PenFed, 769.

Analysts in the Porter report acknowledged that “this situation might be partially explained by borrowers’ poor credit, but NewDay also had the second highest upfront costs, almost double what a borrower would pay for a cash-out loan from USAA.”

The average total up-front cost of a cash-out refinance at NewDay was $10,335 in 2019, compared to USAA’s average cost of $5,590, according to the analysts.

If the high interest rates were a function of poor credit, the report stated, “then NewDay USA was targeting the most vulnerable consumers with exorbitant fees.”

“A lot of people don’t realize when they’re being overcharged,” a staff attorney for the National Consumer Law Center said. (Stock/Getty Images)
“A lot of people don’t realize when they’re being overcharged,” a staff attorney for the National Consumer Law Center said. (Stock/Getty Images)

“If the high rates were arbitrary, it suggests that NewDay USA was charging service members, military families and veterans higher rates than their credit warranted,” the report added.

However, there are other factors, NewDay officials said. In addition to lending to more consumers with lower credit scores, NewDay has a higher loan-to-value ratio than other top lenders, averaging 90.5 percent in 2020, NewDay officials said. This is the ratio of how much money is borrowed compared to the appraised value of the property. In lending, higher loan-to-value ratios indicate less collateral and more risk for lenders, who many charge higher fees or interest rates, NewDay officials said.

The report recommends that the Consumer Financial Protection Bureau require lenders to include customer credit scores in their required reporting of home loan details, to increase monitoring and transparency of potentially predatory lending. In 2018, the CFPB decided to exclude public reporting of credit scores because of privacy risks to individuals.

Among other things, the Porter report recommended that the VA add the VA home loan funding fee to the list of closing costs that should be recouped through savings from refinancing. VA had not responded by press time to questions about whether those recommendations are being considered.

The CFPB has taken a number of actions related to VA refinancings, including settlements with nine mortgage companies to address deceptive loan advertisements; and action against NewDay USA in 2015 for alleged deceptive mortgage advertising.

The Federal Savings Bank, also targeted in the report, offers competitive interest rates, but it has the “highest up-front costs and most discount points of any cash-out originator,” the report stated. For example, the average total loan cost in 2020 was $10,791, compared to USAA’s average total loan cost of $5,877.

Officials from The Federal Savings Bank had not responded to questions before publication, stating they haven’t had an opportunity to read the entire report.

Advice to VA borrowers

Many home loan borrowers don’t know what most of their charges are in a mortgage closing, said Pizor, staff attorney for the National Consumer Law Center.

“A lot of people don’t realize when they’re being overcharged,” he said.

Most veterans do know what the VA funding fees are, which are one-time payments that the borrower pays on a VA-backed loan. For example, the funding fee for a VA cash-out refinancing loan is 2.3 percent of the loan amount for the first use; and after that, it’s 3.6 percent.

A VA home loan is one of the best loan products out there, Pizor said. “But aside from that, you really have to shop around,” he said. That means get written loan estimates from more than one lender — three, if possible.

“You’ll see the differences in price,” he said. It’s not enough to talk with the loan officers, who are essentially salesmen, he said. You have to look at the numbers on the loan estimates.

Some lenders may try to delay giving you these estimates, he said, but it’s worth insisting on. “Once you get it, certain rules apply about what changes are allowed…. Estimates are supposed to be pretty close.”

He also suggested visiting the Consumer Financial Protection Bureau’s web tool for exploring interest rates in your area. It quickly gives you a sense of what the interest rates are, and can be useful “because you’ll know if someone is giving you an estimate that’s way out of line,” he said.

When shopping for a loan, it’s always wise to get your credit scores beforehand. The higher your credit score is, the better the terms you’ll get. But a lot of people assume they have bad credit, without checking their credit scores, Pizor said.

Source link

Continue Reading

News

Are Sallie Mae Student Loans Federal or Private?

Published

on

When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

Learn more:

Source link

Continue Reading

News

Tips to do some fall cleaning on your finances

Published

on

Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

Source link

Continue Reading

News

How to Get a Loan Even with Bad Credit

Published

on

Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.

 

 

Source link

Continue Reading

Trending