U.S. GOVERNMENT PUBLISHING OFFICE

35–371 WASHINGTON : 2019

HOME LOAN CHURNING PRACTICES AND HOW 

VETERAN HOMEBUYERS ARE BEING AFFECTED 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ECONOMIC 

OPPORTUNITY 

OF THE

COMMITTEE ON VETERANS’ AFFAIRS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

WEDNESDAY, JANUARY 10, 2018 

Serial No. 115–43 

Printed for the use of the Committee on Veterans’ Affairs 

( 

Available via the World Wide Web: http://www.govinfo.gov 

Leonard.horne on VACREP0180 with DISTILLER

(II) 

COMMITTEE ON VETERANS’ AFFAIRS 

DAVID P. ROE, Tennessee, Chairman 

GUS M. BILIRAKIS, Florida, Vice-Chairman 

MIKE COFFMAN, Colorado 

BRAD R. WENSTRUP, Ohio 

AMATA COLEMAN RADEWAGEN, American 

Samoa 

MIKE BOST, Illinois 

BRUCE POLIQUIN, Maine 

NEAL DUNN, Florida 

JODEY ARRINGTON, Texas 

JOHN RUTHERFORD, Florida 

CLAY HIGGINS, Louisiana 

JACK BERGMAN, Michigan 

JIM BANKS, Indiana 

JENNIFFER GONZALEZ-COLON, Puerto 

Rico 

TIM WALZ, Minnesota, Ranking Member 

MARK TAKANO, California 

JULIA BROWNLEY, California 

ANN M. KUSTER, New Hampshire 

BETO O’ROURKE, Texas 

KATHLEEN RICE, New York 

J. LUIS CORREA, California 

KILILI SABLAN, Northern Mariana Islands 

ELIZABETH ESTY, Connecticut 

SCOTT PETERS, California 

JON TOWERS, Staff Director 

RAY KELLEY, Democratic Staff Director 

SUBCOMMITTEE ON ECONOMIC OPPORTUNITY 

JODEY ARRINGTON, Texas, Chairman 

GUS BILIRAKIS, Florida 

BRAD WENSTRUP, Ohio 

JOHN RUTHERFORD, Florida 

JIM BANKS, Indiana 

BETO O’ROURKE, Texas, Ranking Member 

MARK TAKANO, California 

LUIS CORREA, California 

KATHLEEN RICE, New York 

Pursuant to clause 2(e)(4) of rule XI of the Rules of the House, public hearing records 

of the Committee on Veterans’ Affairs are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 

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(III) 

C O N T E N T S 

Wednesday, January 10, 2018 

Page 

Home Loan Churning Practices And How Veteran Homebuyers Are Being 

Affected ................................................................................................................. 1 

OPENING STATEMENTS 

Honorable Jodey Arrington, Chairman .................................................................. 1 

Honorable Beto O’Rourke, Ranking Member ........................................................ 2 

WITNESSES 

Mr. Jeffrey London, Director, Loan Guaranty Service, Veterans Benefits Administration, U.S. Department of Veterans Affairs .......................................... 3 

Prepared Statement ......................................................................................... 26 

Accompanied by: 

Mr. John Bell, Deputy Director, Loan Guaranty Service, Veterans Benefits Administration, U.S. Department of Veterans Affairs 

Mr. Michael R. Bright, Executive Vice President and Chief Operating Officer, 

Government National Mortgage Association ..................................................... 5 

Prepared Statement ......................................................................................... 29 

Mr. J. David Motley, CMB, President, Colonial Savings, F.A., On behalf 

of the Mortgage Bankers Association ................................................................. 7 

Prepared Statement ......................................................................................... 33 

Mr. Brock Cooper, General Counsel, Veterans United Home Loans ................... 8 

Prepared Statement ......................................................................................... 36 

QUESTIONS & ANSWERS FOR THE RECORD 

Ginnie Mae ............................................................................................................... 39 

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(1) 

HOME LOAN CHURNING PRACTICES AND 

HOW VETERAN HOMEBUYERS ARE BEING 

AFFECTED 

Wednesday, January 10, 2018 

COMMITTEE ON VETERANS’ AFFAIRS, 

U. S. HOUSE OF REPRESENTATIVES, 

Washington, D.C. 

The Subcommittee met, pursuant to notice, at 10:02 a.m., in 

Room 334, Cannon House Office Building, Hon. Jodey Arrington 

[Chairman of the Subcommittee] presiding. 

OPENING STATEMENT OF JODEY ARRINGTON, CHAIRMAN 

Mr. ARRINGTON. The Subcommittee will come to order. 

Good morning, everyone, and welcome to today’s Subcommittee 

on Economic Opportunity and our oversight hearing entitled ‘‘Home 

Loan Churning Practices and How Veteran Homebuyers are Being 

Affected,’’ and additionally, how taxpayers could be affected. This 

is the second oversight hearing that we have held this Congress related to VA’s Loan Guaranty Program and the benefits that are 

provided to our American servicemembers and veterans on account 

of this program. 

As Mr. London with the Department of Veterans Affairs discusses in his testimony, VA has guaranteed over 23 million loans 

in excessive of $2 trillion since the 1940s. That represents millions 

of veterans, servicemembers, and their families who may not have 

otherwise been able to achieve the American Dream. 

And while this program is one of the more well-run programs at 

the VA—and I have some thoughts about why it is. Mainly because 

they guarantee it. But the lenders are involved, and they underwrite it, there are more people involved in administering it in the 

private sector. 

But they have recently had some concerns about certain activities being conducted by some lenders, potentially unscrupulous 

lenders, which have the potential for harmful outcomes for veteran 

home buyers. But not only for the home buyers, but for more the 

mortgage industry and for, again, the taxpayer who in guaranteed 

programs like this are ultimately on the hook. 

We have seen reports of what may be deceptive practices that 

seem to be, in some cases, misleading veterans to refinance their 

homes with the idea that they will have lower interest rates or be 

able to skip a mortgage payment or take cash out of their homes 

that will, quote, unquote, save them money down the road. And as 

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our dads taught us, if something sounds too good to be true, oftentimes it is too good to be true. 

So we have heard stories of individual veterans receiving dozens, 

dozens of solicitations from certain lenders in the immediate week 

after closing on their homes, leading some of them to believe that 

they will pay less cash each month if they just refinance their 

homes with these lenders. However, due to the realities of hidden 

fees, adjustable interest rates, and other products like that, the 

veteran can end up paying much more than they ultimately can afford or even remove all their equity in the home, such that they 

end up upside down on their mortgage. 

These practices are troubling. They don’t seem to have the best 

interests of the veteran in mind. They can have a negative impact 

on financial institutions and the investors that support them. And 

then, most disconcerting to me, they are depreciating the value of 

the VA guaranteed loans and the integrity of the program, and 

they are exposing—potentially exposing taxpayers to greater risk. 

I understand that many households do experience instances 

where refinancing through an Interest Rate Reduction Refinancing 

Loan, or an IRRRL, is necessary and appropriate for their own financial circumstances. However, we must ensure that there are appropriate standards in place to prevent unfair and deceptive practices, number one; and, number two, that these products are being 

offered consistent with safe and sound practices to protect the integrity of the Home Loan Program. 

I look forward to discussing these solutions with our witnesses 

today to ensure that we are appropriately protecting the veteran 

consumer, the integrity of the program, the taxpayer, who, by the 

way, has agreed to make this investment and be a guarantor for 

this program so that we can serve our veterans in this way. 

I again thank the witnesses for being here this morning, and I 

look forward to your testimony. 

And I now want to yield time to my friend, Ranking Member 

Beto O’Rourke. 

OPENING STATEMENT OF BETO O’ROURKE, RANKING 

MEMBER 

Mr. O’ROURKE. Mr. Chairman, thank you for helping to organize 

this meeting, to your staff and the minority staff for ensuring that 

we are prepared for it. I am looking forward to hearing from those 

who are here today to testify and answer our questions. 

And as always, you have done such an excellent job of describing 

the benefit of the program that we seek to enhance, some of the 

challenges that face that program right now, and specifically the 

veterans for whom it is set up and administered and intended to 

benefit. 

And as we have often done in this Subcommittee, which I think 

really distinguishes it from so much of the other work in Congress, 

I would love to see us, perhaps by the end of this meeting, suggest 

some commonsense solutions that the VA could either adopt administratively or that we will work on as, literally, an act of Congress, if necessary. I think that is something that we have been 

able to do in many of our meetings together with the participation 

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of the Members, input from VSOs and veterans, and the wisdom 

that we gain from the panel here. 

And so I have come in with some ideas. I want to listen to yours. 

I want to hear what the experts have to say. And then, perhaps, 

in summary at the end of this, we could hopefully get on the same 

page about how we could correct this in a way that is not burdensome or onerous but protects veterans from fraud or duplicity or 

decisions that they may not be making in an informed way. 

So I am looking forward to the conversation and grateful that 

you brought us all together today on this important issue. And with 

that, I will yield back. 

Mr. ARRINGTON. Thank you, Ranking Member O’Rourke. And I 

share your sentiments and the desired outcome to find out where 

the problem lies and what tools the folks here, the stakeholders 

need to solve the problem, and then move forward with just a better environment altogether for our veterans and taxpayers. 

So with that, let’s make introductions of those who are here to 

testify with us. 

We have Mr. Jeffrey London, Director of VA’s Loan Guaranty 

Service. And he is accompanied by Mr. John Bell, Deputy Director 

of VA’s Loan Guaranty Service. 

Mr. Michael Bright, Executive Vice President, Chief Operating 

Officer of the Government National Mortgage Association, better 

known as Ginnie Mae. 

Glad to have you here with us. 

Mr. J. David Motley, President of Colonial Savings, who is testifying on behalf of the Mortgage Bankers Association, an important 

stakeholder, no doubt, in this discussion. 

And finally, Mr. Brock Cooper, General Counsel for Veterans 

United Home Loans. 

Thanks, everybody, for being here, and certainly look forward to 

hearing from you. 

Let’s start with Mr. London. You have 5 minutes for your opening statement. 

STATEMENT OF JEFFREY LONDON 

Mr. LONDON. Good morning, Chairman Arrington, Ranking Member O’Rourke, and other Members of the Subcommittee. Thank you 

for the opportunity to appear before you today to discuss the Department of Veterans Affairs Home Loan Guaranty Program and 

the issue of serial refinancing and the impact it can have on veteran borrowers. 

Making sure refinance loans provide veterans with a benefit and 

not future financial harm is a very important matter. No one is 

helped when a refinance loan ends in a foreclosure. 

It is also very important to ensure that VA loans facilitate 

healthy mortgage-backed securities and continue investment in our 

Nation’s housing market. 

Today I am pleased to share with you our assessment of the situation, the activities to assist veterans that we have undertaken in 

collaboration with our colleagues thus far, and a sensible, impactful 

approach we have crafted to ensure program success. 

First, I would like to give a sense of the scope and nature of the 

situation in our program. The vast majority of refinanced loans are 

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providing veterans with benefits. For example, one disabled veteran living on Social Security income and VA disability was able 

to reduce the interest rate and change terms to save over $500 a 

month. Another veteran who was a police officer with two children 

was able to reduce the interest rate and save over $400 a month. 

Data from the last 2 fiscal years also show positive trends. Not 

only did the number of veterans who obtained two or more streamlined refinances in a given fiscal year decline significantly, approximately 80 percent year over year, the number of lenders engaging 

in notable habitual refinancing also declined from approximately a 

dozen in fiscal year 2016 down to only a handful in fiscal year 

2017. 

So, yes, there have been instances of lenders not using the 

streamlined refinance program for its intended purpose. Although 

we believe those instances are not indicative of a systematic problem, VA’s steadily high loan volume reverberates to Ginnie Mae’s 

investors. And, of course, one veteran being misled or taken advantage of is one veteran too many. So we are compelled to act and 

make an impactful change. 

Our program’s success is built on a longstanding history of employing policy actions that are appropriate for the given situation. 

We take measured approaches to policy interventions and complex 

situations. 

A regulation has been drafted with due care. Our overarching 

concern in developing the rule was to ensure that our veteran borrowers receive a net tangible benefit. 

In addition to analyzing seasoning requirements appropriate for 

streamlined and regular/cash-out refinance loans, we examined the 

long-term cost veteran borrowers could face in obtaining them. 

Meanwhile, we also collaborated with our colleagues at Ginnie Mae 

and the Consumer Financial Protection Bureau to employ non-regulatory actions that could quickly serve veterans, taxpayers in general, and mortgage investors alike. 

The VA team has focused a great amount of time and energy in 

working with Ginnie Mae in a joint task force which has resulted 

in two all-purpose memorandums aimed at the frequency of refinance loans. We collaborated with the CFPB on a warning order 

which provided veterans with important consumer and financial information to consider when deciding whether to refinance an existing mortgage. We have held a number of meetings with the Mortgage Bankers Association and their members to discuss program 

policy and data as they relate to the underwriting, origination, and 

performance of VA guaranteed loans. 

As the draft regulation makes its way to publication for comment, we have turned that eye to examining the impacts that recent market conditions may have on other segments of our business, more particularly, the Regular/Cash-out refinance program. 

We anticipate that, in response to market conditions, lenders will 

shift their business models to originating more purchase loans or 

more regular/cash-out refinance loans. 

As a result, we will be keeping a close eye on trends in these programs to ensure they are being stringently underwritten to our established standards and the loans provide the intended benefit to 

our veteran borrowers. 

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Members, despite the concern that others may have expressed 

about the heading we have followed and the speed at which we 

have traveled, I am confident that the road we have engineered is 

a sensible one and that it will have a net positive impact for our 

veterans, for lenders, and for the broader origination and secondary 

markets. 

Thank you again for the opportunity to speak to you today. And 

as always, I thank you for your unwavering commitment to serving 

our Nation’s veterans and servicemembers. I look forward to entertaining any questions you may have. 

[THE PREPARED STATEMENT OF JEFFREY LONDON APPEARS IN THE

APPENDIX]

Mr. ARRINGTON. Thank you, Mr. London. 

Now, from Ginnie Mae, Mr. Michael Bright. We yield 5 minutes 

for your introductory statement. 

STATEMENT OF MICHAEL R. BRIGHT 

Mr. BRIGHT. Chairman Arrington, Ranking Member O’Rourke, 

and Members of the Subcommittee, good morning, and thank you 

for inviting me here today. 

My name is Michael Bright, and I am the executive vice president and chief operating officer of the Government National Mortgage Association, or Ginnie Mae. I thank you very much for inviting me here to testify on this critical issue. 

For background, Ginnie Mae is a Federal agency, chartered by 

Congress in 1968, responsible for providing liquidity to the market 

for mortgages in the Veterans Affairs, Federal Housing Administration, and USDA rural housing programs. We do this by applying 

a full faith and credit government guarantee to loans that qualify 

for delivery into our security. 

Qualifying loans are those guaranteed by the USDA, VA, and 

FHA under their respective program guides. These loans are then 

pulled into our mortgage-backed securities, or MBS. 

The Ginnie Mae guarantee and the Ginnie Mae brand is globally 

recognized and trusted. The strong value of our brand leads to investment in the U.S. housing market from large asset managers, 

pension funds, and central banks across the globe, all of which 

makes lending to low-income, first-time, rural, and veteran borrowers possible. 

It would be very difficult for me to overstate the consequences for 

the U.S. housing market if Ginnie Mae and our partner Federal 

agencies, the USDA, VA, and FHA, did not successfully police our 

programs. Global capital is drawn to our market in part because 

of the strength of the United States and its credit worthiness. But 

if our program is abused or taken advantage of, this capital can 

and will find other investment vehicles. That would drive up interest rates and make mortgage credit less available for millions of 

Americans. 

As such, it is imperative that we all work together, those of us 

here on this panel as well as Congress, to solve the issue we are 

here to discuss today. 

We believe we are seeing abusive practices by some lenders in 

the VA program, namely the rapid refinancing of borrowers mulLeonard.horne on VACREP0180 with DISTILLER

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tiple times without significant economic benefit. We believe, and 

our data shows, that this practice is the result of a relatively small 

percentage of lenders. But, importantly, it has become endemic 

enough in the market that it threatens the health of our security, 

and so action to curb this behavior is imperative. 

Abusive lending practices in the VA market are alarming on so 

many levels. First, as I mentioned before, if this behavior persists, 

we run the risk of losing the capital needed to fund critically important home ownership programs. 

Second, to watch behavior that is borderline predatory in nature 

return to our country is terrifying. Much of this behavior is too 

reminiscent of the lending practices used by many in the industry 

prior to the 2008 financial crisis. And finally, the fact that this behavior is targeted at veterans should be sickening to all of us. 

The best way to stop this behavior is to put in place more stringent rules and to say that it will not be tolerated. 

For Ginnie Mae’s part, we have already announced that we are 

putting in place the following new requirements. 

One, no loan can be refinanced and delivered into a Ginnie Mae 

multi-issuer security within 6 months of the first payment due date 

of the original loan. 

Two, no loan that is more than 150 basis points or 1.5 percentage 

points above what we define as par will be eligible for delivery into 

a Ginnie Mae multi-issuer security. 

And, three, lenders who are clearly and demonstrably abusing 

our program will be put on notice. 

Ultimately, under forthcoming rules, some pools will no longer 

enjoy the benefits of delivery into our flagship security and instead 

will be forced into what we call custom pools. This is a powerful 

tool that Ginnie Mae can and will use. 

Let me repeat: Issuers who produce pools of loans that perform 

materially different than our average will need to find their own 

investors. This action will help prevent the bad actions of some 

issuers from filtering into poor security pricing for those who use 

our program in a responsible manner. 

I believe that 2018 will be a critical year for this issue. If we cannot get a handle on this behavior, abusive lending will continue to 

infect our market and our program. That could drive away important sources of capital and may create an environment where veterans are viewed as suitable prey for aggressive lending. 

I would like to take a moment and also say to veterans that you 

have the right to make unwanted calls or solicitation stop. Refinancing your loan multiple times likely has consequences that you 

may not be aware of. And if you see terms on a loan that appear 

too good to be true, they probably are. Veterans should feel free to 

contact me or any other official at Ginnie Mae at any time if they 

feel they are being harmed. 

In conclusion, let me thank you all once again for bringing attention to this issue. At Ginnie ae, we are here to work with all of you 

in doing everything that is needed to root out abusive behavior 

from this important loan program. 

Thank you, and I am happy to answer any questions that you 

have. 

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[THE PREPARED STATEMENT OF MICHAEL R. BRIGHT APPEARS IN

THE APPENDIX]

Mr. ARRINGTON. Thank you, Mr. Bright. 

Mr. Motley, you now have 5 minutes. 

STATEMENT OF J. DAVID MOTLEY 

Mr. MOTLEY. Thank you. 

Chairman Arrington, Ranking Member O’Rourke, and Members 

of the Subcommittee, I appreciate the opportunity to testify this 

morning on behalf of the Mortgage Bankers Association. 

My name is Dave Motley, and I am president of Colonial Savings, a privately held, federally charted thrift headquartered in 

Fort Worth, Texas. 

For over 65 years, we have been originating loans for veterans. 

In fact, our founder, a veteran himself, saw the opportunity to 

serve veterans returning from World War II. 

Today, roughly 10 percent of our origination volume is to veterans, and we service over 6,000 loans for VA borrowers. 

I am also Chairman this year of the MBA. I am a certified mortgage banker, and I previously served as a board member of the 

Texas MBA and a member of the Community Bank Advisory Council for the Consumer Financial Protection Bureau. 

I would like to begin by applauding this Subcommittee for its efforts to better understand problematic practices with respect to certain mortgage refinances marketed to servicemembers and veterans of the U.S. military. The VA’s mortgage loan program plays 

an important role in increasing the availability of mortgage credit 

for servicemembers, veterans, and surviving spouses. By guaranteeing a portion of the loan balance, the VA enables lenders to offer 

loans with more favorable terms, such as no required down payment. 

While those borrowers seeking to refinance their VA loan may 

apply and be evaluated by their lender’s full underwriting process, 

the VA Interest Rate Reduction Refinance Loan, IRRRLs, allows 

for a streamline refinance process that is often faster and entails 

lower costs. 

Generally, refinancing with an IRRRL allows the borrower to 

lower the interest rate on the mortgage. And in doing so, the borrower incurs fees from the lender which are either paid by the borrower at origination or rolled into the principal balance of the new 

loan. 

Recently a small number of lenders have undertaken aggressive 

and potentially misleading advertising campaigns to generate increased IRRRL volumes and fees. In some cases, this advertising 

targets VA borrowers who have just recently engaged in an IRRRL, 

convincing them to refinance yet again to lower their interest rate 

by a modest amount while adding even more fees to the principal 

balance on the loan. 

Such serial refinance refinancing, or churning, strips borrowers’ 

equity and often further extends the time period it takes for the 

cost to be recouped through lower payments. Some lenders also use 

the IRRRL to lower the rate, but only by moving the veteran from 

a 30-year fixed rate to a 3-year adjustable rate mortgage. 

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Many borrowers may not fully comprehend the net economic impact of their decision to refinance, leaving them vulnerable to situations in which they add substantial amounts to their overall loan 

balance while achieving only small reductions in their monthly 

payments. This is not what the program was intended to do, and 

these practices should be put to an end. 

Aggressive use of IRRRLs by some lenders also threatens to 

weaken investor demand for Ginnie Mae securities that are partially backed by VA loans. This outcome increases costs and negatively impacts access to credit for a wide range of borrowers. 

It is worth noting that IRRRL churning is not a widespread problem among the mortgage lending community, but rather an activity 

that is confined to a small subset of lenders. MBA fully supports 

supervisory efforts to improve the policing of the market as well as 

new rules to remove the ability or incentive for any lenders to engage in churning. 

We applaud Ginnie Mae for taking important steps to both study 

and address this issue. However, the problem of loan churning cannot be solved by Ginnie Mae alone. 

Fortunately, many practical options fall within the existing authority of VA to implement. For example, instituting a maximum 

recoupment period would inhibit lenders from charging substantial 

fees in exchange for minor reductions in mortgage interest rates. 

Similarly, requiring a net tangible benefit test, which is already 

required for FHA streamline refinances, could more effectively ensure that the terms of the refinance produce real benefits for borrowers. Limits on the amounts that can be added to the principal 

balance would reduce equity stripping. And finally, targeted consumer financial education about churning can better inform borrowers about the potential for abuse. 

It is important to focus on options that target churning while not 

impeding the ability of servicemembers and veterans to obtain a 

beneficial refinancing. We recognize that the VA program is a 

unique program: an entitlement program for veterans who have 

served our country. As such, while we support quick action to limit 

abuses, it needs to be done thoughtfully to ensure that legitimate 

low-cost refinancing options for veterans are retained. 

MBA is committed to the promotion of best practices and standards that generate a healthy and responsible mortgage market, and 

we stand ready to assist in developing and implementing solutions 

to the problems we have discussed today. 

[THE PREPARED STATEMENT OF R. DAVID MOTLEY APPEARS IN THE

APPENDIX]

Mr. ARRINGTON. Thank you, Mr. Motley. 

I yield 5 minutes now to Mr. Cooper for his opening remarks. 

STATEMENT OF BROCK COOPER 

Mr. COOPER. Good morning, Chairman Arrington, Ranking Member O’Rourke, and other Members of the Committee. My name is 

Brock Cooper, and I am general counsel of Veterans United Home 

Loans. I would also like to thank the rest of the Members of the 

panel for being here today to address this issue. 

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Thank you for allowing me the opportunity to come here before 

you today to discuss lending practices that impact our Nation’s 

servicemembers and veterans. 

I have worked for Veterans United for nearly 10 years and have 

headed VU’s legal department for that entire time. I am a veteran 

myself and have used the VA loan several times, including an 

IRRRL. I have a VA loan today, and I have seen firsthand the aggressive and misleading refinance practices employed by some in 

the industry. 

Veterans United is a full-service family-owned lender. We are 

headquartered in Columbia, Missouri, and we make VA loans in all 

50 States and the District of Columbia. 

Our primary mission is helping veterans, servicemembers, and 

their families achieve the American Dream of home ownership. We 

have been the Nation’s number one VA purchase lender the past 

2 years, closing more than 37,000 purchase loans in 2017. Veterans 

United now represents approximately one out of every seven VA 

purchase loans made in the country among the top 100 VA purchase lenders. 

If I could impress one thing upon you today, it is that the VA 

loan is not like other mortgages. It differs from FHA loans and all 

other mortgage programs because it is an earned service benefit to 

our veterans and our Active Duty personnel and surviving spouses. 

It is part of a deep bond between those who serve and the Nation 

these veterans pledged to defend. 

As we work to find solutions to the issues discussed here today, 

I implore the Committee to examine whether or not particular solutions may result in fewer earned benefits for veterans. 

The VA loan program stands out as a true success story. Before 

the mortgage crisis, the VA loan was a little-used product. But due 

to unique underwriting, VA loans were the only shining light 

through the mortgage crisis, performing better than any other program. 

Today, VA loans represent about 10 percent of the mortgage 

market. The program has featured the lowest average interest 

rates for more than 3 years, along with the lowest foreclosure rates 

for about 10 years. In particular, the IRRRL program has helped 

hundreds of thousands of veterans save money in their monthly 

mortgage payments. 

Unfortunately, as the Members of the panel stated before, some 

IRRRLs fail to live up to the spirit and intent of this program. The 

idea behind the IRRRL is to put veterans in a better financial position today than they were yesterday. We are here today to discuss 

improvements to this program that will ensure this spirit is carried 

out in every IRRRL. 

We have seen many, many veterans harmed by this activity. And 

in many situations, the veteran is left so far underwater, they may 

have difficulty selling their home in the future. Still others are left 

with adjustable rate loans that they don’t understand and could result in higher payments down the road. And others have costs that 

could just never be recouped. 

We commend the VA and Ginnie Mae for their active engagement on this issue, and we salute their commitment to protecting 

veterans. 

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We are here to talk about next steps. Going forward, the VA is 

in the best position to solve this issue without compromising veterans’ benefits. However, the VA inhibited from moving with solutions due to administrative requirements that are part of the VA 

program. 

Unlike VA, other agencies, such as Ginnie Mae, Fannie Mae, 

Freddie Mac, and FHA, can make changes more quickly. We support legislation that would empower the VA to make program 

changes in a similarly expeditious manner, potentially including 

seasoning and recoupment periods for IRRRLs. Additionally, policymakers should ensure that non-cost-saving reasons are considered 

through the process to protect benefits of our deserving veterans. 

Thank you again, Mr. Chairman and Ranking Member and the 

Committee, for allowing me to come before you today, and I look 

forward to questions. 

[THE PREPARED STATEMENT OF BROCK COOPER APPEARS IN THE

APPENDIX]

Mr. ARRINGTON. Thank you, Mr. Cooper. 

I now recognize and yield myself 5 minutes. I may have to leave 

early. I would rather yield to my colleagues, but in the event I have 

to leave, I wanted to go ahead and put my thoughts out there and 

ask you guys some questions. 

I spent 4 years as a regulator here in Washington during the 

Bush administration, George W, at the FDIC, and my philosophical 

view of regulation is that the best way to regulate in a private market is to have full transparency and robust competition so that people know what they are getting and they have choices. 

Because, presumably, if people are buying things, if they are 

choosing to enter into these transactions, there must be a need. 

There is no market if there is no need. And I think that Mr. Motley 

would understand that being in the industry. 

But this isn’t a private market. This is a government market. Explain that to me more, Mr. Bright, explain the difference between 

the sort of light touch, limited intervention with the sort of transparent, robust competition that free marketeers like me believe in 

and rely on as the best way to weed out the riffraff. Now we got 

a government market. What is different about it? What is skewed 

in that dynamic? 

Mr. BRIGHT. Yes, sir. Thank you for the question. 

It is true that in the mortgage finance base, in particular in 

FHA, VA, and USDA lending, the term ‘‘market’’ we use a little bit 

loosely, because you have originators who are originating a loan 

and they are purchasing government insurance on that loan, in 

this case, in terms of the VA, and then they are purchasing another form of government insurance to wrap the mortgage-backed 

securities. So you have actually two taxpayer layers of involvement 

to ensure that there is no credit risk at the end product. 

Mr. ARRINGTON. So the full faith and credit of the United States 

Government is now brought to bear in this. 

Mr. BRIGHT. Absolutely. 

Mr. ARRINGTON. We created this market with the full faith and 

credit of the taxpayer backing up not just once with the guarantee— 

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11 

Mr. BRIGHT. Yes. 

Mr. ARRINGTON [continued].—from the VA program but— 

Mr. BRIGHT. Twice. 

Mr. ARRINGTON.—with Ginnie Mae. 

Mr. BRIGHT. Yes. So, absolutely, a policy decision was made that 

we want to as a country make sure that, in this case veterans, but 

in the FHA’s case low-income Americans, have access to loans on 

terms that they otherwise would not have. In order for that to be 

successful, we have to police our program. So we have created, as 

you say, a double-layered government market. 

Mr. ARRINGTON. So in the absence of robust market forces, we 

have to play a greater role to protect those stakeholders, but namely the veteran and the taxpayer as the backstop here. 

So I am curious, is this an issue of safety and soundness for the 

program, for the taxpayer ultimately, or is this an issue of consumer protection or what we might refer to as an unfair and deceptive practice? 

So let me ask Mr. Cooper, are they disclosing, these folks that 

we are talking about as churners, are they disclosing that they are 

churning? Are they disclosing everything that they are going to do? 

Or are they being deceptive and unfair, in your opinion? 

Mr. COOPER. Thank you. 

I personally don’t know if these things are deceptive initially. 

But I can tell you that we see disclosures that come through that 

don’t put the veteran in a better financial position. So they may be 

disclosing it, but we feel like that they are being pressured to make 

these loans in certain situations. 

Mr. ARRINGTON. So here is my problem with that. And, I mean, 

I feel like our veterans are some of the toughest, mentally strong, 

mentally competent, mature, wise. These folks have borne tremendous responsibility. And now all of a sudden, if somebody is disclosing things to them, I have a hard time believing that they are 

being necessarily taken advantage of. They may, but I struggle 

with that. 

Now, if they are being deceived and folks are putting out, holding 

out to do one thing, and then they are doing another, that is a 

problem. And if you can’t stop that at the VA and Ginnie Mae, let’s 

figure out how we can have an act of Congress to do that. But to 

suggest that they can’t fend for themselves when reading about 

what they are getting into, I struggle with that. 

My last question, then I am going to yield to my colleagues that 

is on the consumer protection side. So if there is not the disclosure, 

if there is not transparency, we need to know that and if you don’t 

have the tools to deal with that. 

The other issue is the safety and soundness. So whether they are 

disclosed fully and they are completely transparent or not and 

know what they are getting into or not, if it puts greater risk to 

Ginnie Mae and to the VA and the taxpayer, that is a real problem 

for me regardless. 

So would the panel just kind of opine on that? I would ask Mr. 

London and Mr. Bright to just make some comments on that. And 

then I am going to yield to the Ranking Member for his remarks. 

And thanks for being a little generous here on my time. 

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Mr. LONDON. Yes, Mr. Chairman. Thank you for the opportunity 

to respond to your question. 

Mr. ARRINGTON. And, by the way, if you want to also comment 

on what I said about the veteran reading and understanding versus 

deceptive, I think there is a real difference there. So feel free to 

opine on any of what I said. 

Mr. LONDON. Sure. And I have to start by saying, like, you spent 

4 years at the FDIC. Four or 5 years of my time with the VA was 

in oversight and compliance. So I share your sentiments about 

making sure that there is safety and soundness in a program. That 

is just built in my DNA. 

And if you look at the outcomes that our program has, the numbers do not lie. The VA program is a sound program. Mr. Cooper 

mentioned that for the last 10 years we have had the lowest foreclosure rate and the lowest series delinquency rate. That is an indicator of the safety and soundness of our program. 

And as I mentioned in my opening statement, the actions that 

we have taken over the years to ensure that we continue to have 

those type of performances is exactly what we need to do for the 

issues that are brought out today. 

So I do believe that VA has the statutory authority to address 

the issues. I agree with you about consumer education. And our 

veterans can make sound decisions on their own. It is our job in 

the VA to make sure that we give them the tools to make those 

decisions. 

Mr. BRIGHT. I agree. I would add it is entirely true that the VA 

loan program has low delinquencies, and I think that is a testament to the VA, I think it is a testament to the deal that officers 

and enlisted folks make with themselves when they apply for this 

program. There is a very strong sense that, ‘‘Hey, this is an earned 

benefit, but we have to continue to earn this benefit by performing 

on our loan,’’ and that is a great pact. The problem is we have 

some lenders who don’t seem to be living up to that pact as well. 

Absolutely this type of behavior puts taxpayers at risk in a couple of very concrete ways. The first is that at Ginnie Mae we wrap 

the mortgage-backed security. Our recourse, meaning if a lender 

fails to remit principal and interest on time, we have to make that 

payment for them. Whether the borrower makes it or not, if a lender fails to make on time, we have to make that for them. That is 

what our guarantee is. 

Our asset, the asset that we have recourse to, and you, as a 

former chief of staff of the FDIC understand you go in and you pull 

out an asset in the case that an institution fails to live up to its 

obligations, our asset is the MSR, the mortgage servicing rate. 

When we have prepayment speeds that are inexplicable by any 

economic measure whatsoever, what that does is that drives down 

the value of the mortgage servicing rate or the MSR, which means 

the collateral that the taxpayer has, has access to and has recourse 

to in the event that our counterparty fails to live up to their obligations, that asset is declining rapidly in value because we have 

issuers who have prepayment speeds where their entire book turns 

over in 6 months. 

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13 

And so it is a technical issue, and I don’t mean to get too weedy 

on it. But absolutely 100 percent the asset that Ginnie Mae has recourse to falls in value because of this behavior. 

And then the final small point would be, if you have lenders who 

are solely in the refi business and that goes away, those lenders 

face insolvency. And when they go insolvent, that is when Ginnie 

Mae’s wrap kicks in, and we have to go in there and take their 

book. And as I just explained, the asset that we are taking has just 

fallen in value. 

So this is a full ecosystem degeneration thing that we have got 

going that is separate and apart from the veterans who are doing 

a very admirable job of paying their loans on time. 

Mr. ARRINGTON. I yield now 5 minutes, as much time as you may 

need, actually, to ask any questions and make any comments, 

Ranking Member O’Rourke. 

Mr. O’ROURKE. Yeah. I thank the Chairman and take his point 

about ensuring that there is transparency and adequate information for the consumer, in this case the veteran, to make an informed decision. 

As someone who has purchased a home with my wife, and I am 

not a veteran nor is she, and we have refinanced our home, I do 

have to say you are battling a mountain of that transparency and 

information. And I would be lying to you if I told you that I read 

every single page that I signed. I didn’t. We trusted those who had 

helped us to facilitate the sale and the mortgage. 

And so when you pit the veteran against those who would practice churning, serial refinancing, abusive lending, and they have 

got their marketing teams, they have got the folks in the call rooms 

who are calling these veterans within days, maybe hours, after 

they have already refinanced a loan, I think we need to do more 

than just ensuring that they have information. 

And I wonder if there is a way to prioritize this information. 

And, Kathy, if you don’t mind, I will disclose you and I were talking about this yesterday and talking about whether—there is just 

one page with four bullets on it in 16-point type that says this is 

your principal right now, this will be your principal with the refinancing costs that you will incur if you move forward in this process. This is the consequence. 

I mean, no more than those four, not in 9-point type, not in addition to everything else, especially if this is your second or third or 

fourth refinancing, here is how your principal has grown over that 

time. 

And then if you want to make that very bluntly informed decision to proceed, so be it. You have assumed the risk with the taxpayer backing that up. 

And so I wonder if that might make it a little bit more of a fairer 

engagement between the veteran borrower and the originator of 

the mortgage. 

Mr. Motley, you said the net economic impact, which is what I 

am trying to get at, may not be understood by the borrower, and 

you said perhaps some more targeted consumer information. Are 

we getting at the same thing in terms of this prioritizing? Like, 

look, this is what you are about to take on. I want to make sure 

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14 

you are good with it because it may not be clear from what the person trying to sell you on this originally told you. 

Mr. MOTLEY. Yeah. Thank you, Congressman. 

I think we are moving in the right—in the same direction there. 

I believe that some sort of a net tangible benefit test that is shown 

to the veteran is the way to go, because it is going to show him 

what the actual costs associated with that new refinance are going 

to be against the timeframe it is going to take to recoup those costs 

through lower payments. 

And so if that time horizon is outside of his time horizon, then 

that deal makes no sense for that veteran. It is a decision, though, 

that he can make or she can make. 

So I think that there is definitely a need to establish some kind 

of a net tangible benefit test, similar to what the FHA has, to demonstrate to the borrower that this refinancing makes some sense. 

And if we have that in place, then you either abide by it or you 

don’t abide by it. And if you don’t abide by it, then you, as the lender, are subject to sanctions or maybe getting out of the program. 

But at least you have provided that disclosure to the borrower 

and he has been able to make that decision himself based on his 

circumstances, his terms, and his expected term of living in that 

house. 

Mr. O’ROURKE. Yeah. And so Mr. Motley is talking about consequences to bad actors in the system. 

Mr. London, can you talk a little bit about that and how we hold 

people accountable for churning and taking advantage of veterans 

who may not be told in the clearest or necessary terms just what 

they are taking on? 

Mr. LONDON. Sure. Before I answer that question specifically, I 

do want to touch base on what you were talking about, about the 

disclosure, and share some good news with you. 

Mr. O’ROURKE. Great. 

Mr. LONDON. Today in our program we have a requirement that 

lenders do exactly what you described. We call that the IRRRL 

worksheet where, on the company’s letterhead, they have to disclose the terms of the loan to include the recoupment of that new 

transaction. So we do that today. 

Unfortunately, what happens is the veteran gets that at the closing table, like you described, with a mountain of paperwork that 

they don’t read. 

Mr. O’ROURKE. Right. 

Mr. LONDON. So a decision that I have already made is to ensure 

that that disclosure is provided up front to the veteran. VA will 

also get a copy the same time the veteran gets a copy so that we 

can be that partner with the veteran, if he or she has questions 

about those terms that we can advise him or her, and they can 

make their own informed decision. 

That is something I can do today administratively without any 

regulation or statutory changes. 

Mr. O’ROURKE. When does that start? 

Mr. LONDON. We have to make some system changes. And, obviously, we have to put out some guidance to lenders on what information we need to make that happen. And my goal is to have that 

happen this year, this calendar year. 

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15 

Mr. O’ROURKE. Okay. It seems like—again, you know this far 

better than I do—seems like a relatively easy fix to make. And, 

first of all, thank you for doing it. And I love that it wouldn’t require an act of Congress to get that done. So first and foremost, 

thank you. 

Secondary, the sooner the better, obviously, right? 

Mr. LONDON. Absolutely. 

Mr. O’ROURKE. And we would love to be kept appraised of your 

progress on that. And maybe just to the staff, if we could have 

something that triggers a request to see what the progress made 

on this is within the next few months, I think that would be helpful. 

And then lastly, again, and sorry to be so specific on this, but the 

larger that information is made and the less surrounding information within which it is buried, the better chance that the consumer 

is going to understand exactly what those consequences are. 

But I love the idea that you are going to move this up to the 

front of the process. And I think, to the Chairman’s point, you are 

going to have a much more informed, much more transparent 

transaction. So I think that is good news. 

I am going to yield back to the Chairman, but I do hope that in 

the questions from the other Members we get to hear from Mr. 

Cooper. He said that he had some specific program changes in 

mind, and I would love to know what those are as well. 

But thank you, Mr. London. 

Mr. ARRINGTON. Great line of questions. And now we will yield 

5 minutes to Mr. Banks for any questions he has. 

Mr. BANKS. Thank you, Mr. Chairman. 

Mr. London, my wife and I’s experience with our VA loan has 

been tremendous, and we appreciate the service that we have received through the process as we have taken advantage of that opportunity for us as a family. 

But I wonder, could you tell us what level of attention have some 

of these problems been raised to the higher levels of your organization’s leadership? Has Secretary Shulkin been briefed? Is he well 

aware of these issues? Is he in tune with your strategies to combat 

them? 

Mr. LONDON. Absolutely. And myself, along with the actingacting 

undersecretary, have spoken to the Secretary about this very issue, 

so he is personally aware. Also, our deputy secretary is well versed 

on this issue and, in fact, couple weeks ago met with Mr. Bright 

and others to discuss this issue. So this issue has the attention at 

the highest levels of VA, and they are extremely supportive of what 

we are doing. 

Mr. BANKS. Very good. I appreciate Secretary Shulkin’s leadership more and more every day. And that testament of his interest 

in issues like these is a great compliment even more so of his leadership. 

Mr. Cooper, I wonder if you could talk about your company’s ethics, how you arrived at a place to be an ethical company, not to 

take advantage of some of these predatory examples we have heard 

about in the testimony. 

Mr. COOPER. Sure. Thank you, Mr. Banks. That is a great question. 

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16 

We, as a company, are based on a set of values that we worked 

really hard on as a group, as all of our employees, to set how we 

wanted to act as a company. And we carry that out every day. And 

it is something that we believe strongly in. 

And we came up with a mission as well, that we want to help 

get veterans into homes, and we are very focused on that. We offer 

IRRRL refinances. We offer traditional cash-out refinances. 

But our marketing practices don’t focus on bringing those people 

right after closing to churn through them. And that is just something we felt is always in the best interest of—we are looking out 

for the best interest of the veteran in what we are doing, we feel 

like, is we want to educate veterans on the VA loan and how they 

can best make use of the program. 

Mr. BANKS. Have you seen a decline in those values among your 

competitors during your time in the industry? 

Mr. COOPER. I wouldn’t say that I have seen a decline. I think 

the other Members of the panel have said that there are a few actors out there, and this is not something really new. It just becomes more prevalent when certain market factors change, interest 

rates tick up slightly or tick back down. It is very interest-rate dependent. 

Mr. BANKS. So what would be your advice to us how do we model 

those ethics and values that your company has taken so seriously 

in your business in hopes that other companies will adopt those 

values as well? 

Mr. COOPER. I mean, I think that in and of itself is very difficult 

from a congressional standpoint to model. I like what the Chairman has said about the veteran being able to make decisions for 

themselves. I like the idea of disclosures, being as transparent as 

we can be. There is always room for improvement in that area. 

I really like what Mr. London was saying about the VA being 

able to step in. They have been very successful with that kind of 

process on early intervention for servicing. And so if they implement a similar process there, I think that can be very helpful to 

kind of rein this activity in. 

Mr. BANKS. Okay. Thank you. You give me great hope that other 

companies will emulate the same values and principles that your 

company does as well. And at the very least, our hearing today will 

publicize that, give a public hearing to those thoughts, and hopefully some of your competitors will raise that threshold as well. 

So thank you very much, Mr. Chairman. I yield back. 

Mr. ARRINGTON. Thank you, Mr. Banks. 

I now yield 5 minutes to the gentleman from California, Mr. 

Takano. 

Mr. TAKANO. Thank you, Chairman Arrington. 

Chairman Arrington, I just want to express my gratitude for this 

hearing. I am impressed that you are focusing on an area of consumer protection and that you have made this distinction between 

an absolute free marketplace and a government marketplace and 

that the government marketplace is defined by money that is 

backed by the taxpayers or subsidized by the taxpayers. 

And, therefore, the question of the veteran being able to make 

a complete decision all by himself is a bit modified here, because 

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17 

that veteran is not making a decision that only solely affects his 

or her assets. It is also the assets of the taxpayer that are at stake. 

So we have a duty to make sure that the program is set up properly and that there isn’t—I am forgetting the term when there is 

a moral liability, that there is a lack of—a moral hazard. There is 

a moral hazard here because the risk has been reduced greatly on 

the person benefiting from the decision. 

I hope, Mr. Chairman, we can hold some hearings into another 

area where I think the government marketplace distinction applies, 

and that is in our educational benefits. I am disturbed that in another Committee forum there is a proposal to do completely away 

with 90/10 and allow educational institutions to take 100 percent, 

100 percent of the revenue from the Federal Government, including 

federally backed student loans. So I hope we can delve into that 

area. 

But I want to ask this question of—I can’t see the name back 

there, but the guy at the end. 

Mr. Cooper, as we approach the situation, I want to be careful 

that any action we take does not have any unforeseen consequences. And one proposal that has been discussed is capping 

lender fees and tying the cap to the benefit of the loan for the veteran so that the lender would not be able to collect fees in excess 

of what the veteran saves over a period of time. 

Now, would such a proposal or others like it, to cap origination 

fees, somehow help this problem of loan churning, or do you think 

that as long as there are any fees permitted, lenders will still seek 

to churn? 

Mr. COOPER. Thank you for the question. 

I believe personally that there are already restrictions in place 

in the amount of fees that can be charged. The difficulty becomes 

when you are buying down the interest rate in the form of discount 

points that can then be rolled into the loan, those things become 

another disclosure issue. It is how far down did your rate go when 

you purchased these points, so to speak. 

And so I think it does fall in line with the other pieces that we 

have talked about already, is that there may be other ways to handle it. I don’t know specifics of what the caps might look like in 

addition to what is already there. But it could be one solution. 

Mr. TAKANO. Mr. London, have there been financial service organizations that have been fined by the VA for predatory behavior? 

Is there an ability to do that? And have they been fined at all? 

Mr. LONDON. We do have some ability. We have civil penalties 

that we can apply. But that is in reference to lenders who actually 

try to defraud the veteran or to mislead the government through 

forgery, so it is very specific. 

Mr. TAKANO. Very specific. 

Mr. LONDON. Yes. 

Mr. TAKANO. But does Ginnie Mae—can someone answer about 

Ginnie Mae being able to have this capacity in this, an analogous 

circumstance? 

Mr. BRIGHT. We do have a decent amount of authority at Ginnie 

Mae in terms of policing access to our security. And that is authority that we have been using and are going to continue in the next 

weeks to expand. 

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Mr. TAKANO. Can you tell me whether or not you have actually 

fined companies for this analogous— 

Mr. BRIGHT. We have. We have fined companies for violation of 

our program in this space, yes. 

Mr. TAKANO. And do you publish the names of those companies 

that you have fined? 

Mr. BRIGHT. No. 

Mr. TAKANO. Why not? 

Mr. BRIGHT. I don’t know, but I will find out. And I am happy 

to speak with you offline with that specific information. 

Mr. TAKANO. Mr. London, would this sort of authority be useful 

to the VA if we were able to provide that authority? 

Mr. LONDON. We will be happy to meet with you and your staff 

and provide technical assistance for any type of legislation that you 

think may be helpful in this regard. We are ready to assist you. 

Mr. TAKANO. I would be interested in meeting with both of you 

offline and to discuss this matter further. 

Mr. ARRINGTON. Thank you, Mr. Takano. 

And now yet another gentleman from California, Mr. Correa, we 

yield 5 minutes. 

Mr. CORREA. Thank you, Mr. Chairman, for having this most important hearing. I want to thank the folks here as well. 

Just a little bit about my background. I am a licensed realtor and 

a former loan broker. And, gentlemen, as you know, this can be one 

of the dirtiest businesses that there is out there, real estate, real 

estate loans. 

And, Mr. Cooper, have you ever had to fire anybody? 

Mr. COOPER. I have not personally had to fire anyone, no. 

Mr. CORREA. That is impressive, because most of time there are 

a lot of bad apples out there, and you end up firing folks out there 

because sometimes it doesn’t matter what your mission statement 

is, the interest of making a buck sometimes outweighs the interest 

of following your mission statement. 

In reference to what my colleague Mr. Takano brought up, which 

is do you put this online, the State of California, if you have a doctor that is civilly fined, that goes online. The Bureau of Automotive 

Repairs, any violations go online. So you as a consumer have any 

issues, you immediately go online, see who the heck it is that you 

are dealing with, and that information is disclosed to the world. It 

is not rocket science, folks. We can do this very easy. 

You know, it is very hard also to try to second guess the economic motives, the financial motives, for a veteran to refinance. 

You know, buy-downs, interest loan, fees, points. And as you know, 

sir, sometimes what with these folks do is they will give you discount on the points but they will jack you up on the fees. And at 

the end of the day, you get hit one way or the other. 

It would be interesting if you come up, not rocket science, but an 

application, an app somewhere so a veteran consumer can punch 

in a couple of numbers and come up whether this is good or bad. 

And another question I would have, Mr. London, is do you keep 

records of the folks, the loan originators, and how many loans that 

they are originating so that you can detect whether there is a pattern there of churning or not? 

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19 

Mr. LONDON. We do keep a record of every loan that is originated, but I am glad that you asked that question, so thank you 

for asking, because one of the things that Mr. Cooper mentioned 

was that we have, on the back end, if you will, for servicing of 

loans, when a veteran goes into default, we have a comprehensive 

system where on every single defaulted loan we have tremendous 

amounts of data so that we can see exactly what the servicer is 

doing and we can intervene on the veteran’s behalf if we need to. 

Unfortunately, we don’t have a system like that on the front end. 

However, we have recently let a contract where we reengineering 

the entire system that I just described and we are building the capability on the front end to get information on every single loan 

origination to have the same type of intervention and monitoring 

that we have in servicing a loan. So we are very close to having 

that. 

Mr. CORREA. And I am glad to hear that, and I am hoping you 

put as much of that information online and you direct our veterans 

to that Web site so that they can be a better educated consumer. 

Good faith estimates, don’t we still have those out there, that 

when you originate a loan you give people something that says 

what that loan is going to cost them? Do we still have that? 

Mr. LONDON. Yes. The borrower will get what is called a loan estimate with that type of information. 

Mr. CORREA. And, again, I hope that you keep some kind of a 

database, work on it up front, so that if any of these folks are out 

there originating loans and begin to see a pattern that every 2 or 

3 months they are churning a loan, and if you can look at it then, 

whether they are doing it for their own benefit or the consumer actually benefits. 

Mr. LONDON. Absolutely. 

Mr. CORREA. A lot of neat stuff we can do here to protect our veterans. 

Mr. Chair, I yield. 

Mr. ARRINGTON. Thank you, Mr. Correa. 

I will yield myself another 5 minutes. I think this already proved 

to be a very productive discussion. I think we should continue it. 

Most of my thoughts and comments and questions were philosophical. I mean, I just truly believe that choice for the consumer 

and disclosure is generally the best way to regulate. 

Mr. ARRINGTON. Again, and Mr. Takano articulated it better 

than I could, the market is skewed because government is intervening. In fact, without government or the taxpayer there wouldn’t 

be this market, presumably, because if there would, we shouldn’t 

do it. 

So now comes the question of so we should regulate and engage 

more readily in this on behalf of the taxpayer. And certainly if 

there are ways to have better disclosure and a simpler, easier way 

to digest what product and transaction that they are about to engage in, by all means, I am hoping you guys are reviewing that and 

constantly thinking of ways to do that, although oftentimes more 

regulation to protect the consumer ends up with more paperwork 

for the consumer and I think makes it more difficult and burdensome. 

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20 

But I would like to see that new disclosure product that you guys 

are working on. And as the Ranking Member suggested, if you all 

could submit that, it would be good for us all to look at it. 

But trying to regulate in this space a way those products that we 

deem bad for the veteran, because they are churning, because of 

some definition that we agree is bad, versus—and doing that without diminishing the opportunity for products that they may need, 

real products that are good, safe, sound, useful to the veteran so 

that they can maybe lower their payments. Maybe they need to 

lower their payments. Maybe they know exactly what they are 

doing and they need that. 

Help me, Mr. Motley and Mr. Cooper, tell me where the line is, 

where it is a good product, it is useful, it is safe, it is sound. I 

mean, there is always a transaction cost for the institution. And if 

there is more risk, then the institution has to charge commensurate with the risk. We see that in payday loans all the time. I know 

folks that without a payday loan couldn’t fix their car and go to 

work again because a bank won’t finance them. 

Anyway, what are your thoughts about the line between the appropriate and sound versus the not-so-sound churning? Where is 

that? Define that for me. 

Mr. MOTLEY. Well, it is really not that easy to define because 

every situation is different. I think, as Mr. Cooper said earlier, we 

try to look at all of our borrowers in terms of what is best for them, 

what is the best outcome for them, for their particular situation. 

You have to take a lot of things into account. 

And so I think that you want to have guardrails put in place on 

any program to avoid abuse, and you want to have transparency. 

So your point about proper disclosure is a good one, and having it 

done up front is also a very good one. But I think that we have 

to balance additional regulation with the benefit of that and the 

onerousness and the extra cost of providing additional disclosures. 

But I think that the main point is, is that if we are sure that 

the veteran is benefiting from the refinance transaction, and we 

can do that by showing what the costs are, what the payment reductions, are how long it is going to take him to break even on that 

transaction, and if that makes sense in his situation, then we 

should have satisfied the net tangible benefit test and satisfied VA 

that we have done the right thing for that veteran. 

Mr. ARRINGTON. So let’s assume that we can define a reasonable, 

useful, sound product or transaction that allows the veteran to benefit, and the costs are commensurate, they are built in, the fee is 

commensurate with transaction costs. So let’s say we can define 

that. Do you all, VA and Ginnie Mae, have the authority, legal authority, to define that and to regulate in this space in that regard? 

Do you have the legal authority? And cite for me the legal authority. 

Because here is my thing. I want you to appropriately, because 

of the taxpayer, and I think it is sometimes necessary and appropriate, but I don’t want you to make it up. I don’t want you to just 

create it out of the ether. And so if we as Congress do need to act 

to give you that legal authority, that is the way this thing works, 

as you know. 

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21 

So do you have the legal authority? Cite the legal authority for 

me, both you and Ginnie Mae, please. 

Mr. LONDON. Yes, sir. Thank you for the question. 

As I mentioned, we have a draft regulation that we believe is a 

measured approach to address this issue. And the specific statutory 

authority that we used, there are several, 38 U.S.C. 3710 is one, 

specifically subsection (e), you also have 37O3(c) and 38 U.S.C. 501, 

are the three specific statutory references that we believe gives us 

the authority to regulate this issue. 

Mr. ARRINGTON. And summarize for me, if you would, what that 

legal authority is if you can. I mean, I can go back and look it up, 

and everybody here can. But give me one of the three, the best 

nexus to that authority from which you would promulgate a rule 

to define this net tangible benefit. 

Mr. LONDON. Sir, I will be happy to provide you more detail for 

the Record, but the one that I will choose that gives the agency the 

broadest authority is 38 U.S.C. 501. And that specific reference 

gives the Secretary the authority to regulate VA programs across 

the board, and the other two references that I gave you were specific to the Loan Guaranty Program. 

Again, I will be happy to provide you those details. 

Mr. ARRINGTON. I have taken too much time already. Thank you 

for the answer. 

Mr. Ranking Member, 5 minutes. 

Mr. O’ROURKE. I think Mr. Motley made a really good point 

about ensuring that we do the right thing for the consumer without 

overburdening the lender. And I have heard from many lenders in 

El Paso about how really well-intended legislation to rein in the 

too-big-to-fail institutions inadvertently hurt the smaller independent originators. 

They make a really good compelling case about, look, we know 

the community best, Beto, and when you make it more expensive 

and harder for us to originate, then those who don’t know the community are left with those choices and you see less capital coming 

into the community. 

So your point is very well taken. 

I will say just in the example that we discussed and that Mr. 

London has committed to in terms of prioritizing the net economic 

impact disclosure at the outset and the O’Rourke addendum to 

that, that it be in 16-point type so that it is, like, really easy to 

see and you know what you are getting into, doesn’t seem incredibly burdensome or onerous. It seems fair and seems very workable, again, from my perspective, not knowing your all’s business 

as well as you do so. 

So I hope that you could agree with that or that the industry 

would see that as well. But your point is well taken that we want 

to make sure that we don’t in any way undermine the ability to get 

these loans made or these refinancing transactions completed for 

those who would benefit from them. 

One of the last things, I think, Mr. Chairman, that we need to 

do is make sure that we are hearing from veterans on these proposals and the veteran service organizations who advocate for 

them. I want to make sure that there are no additional suggestions 

or ideas or proposals that have gone unheard or unimplemented. 

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22 

Because in Texas alone we see just last year 60,000 total home 

loans, 21,000 of those were refinances, and we want to make sure 

that we are advocating and protecting those veterans who have 

done everything we have asked them to do and have earned this, 

and that we are able to follow through on it. 

And lastly I want to say this, Mr. London. You really are a 

breath of fresh air. I just left the GAO High Risk List roundtable 

about VHA being able to implement corrections that will improve 

access to care, and some of the responses we got: Well, we are 

going to have a conference call on this. You can see something later 

this year. And in some cases, we have seen to progress on any of 

these. 

So the fact that you came to this meeting with action already undertaken and specific proposals about what you are going to 

change, for example, moving up this information to the outset of 

the transaction instead of the moment when you sign and you are 

under all that pressure, very refreshing. I love seeing that, and I 

hope that you will follow up on that by keeping us informed of your 

progress on implementing this, I think we all agree, sooner better 

than later. And then would certainly love to hear back from the industry, and most importantly, veterans on the efficacy of those efforts. 

So thank you all for what you are doing and your testimony 

today. 

And I will yield back to the chair. 

Mr. ARRINGTON. Mr. Takano, 5 minutes. 

Mr. TAKANO. Let me just look at my notes here. 

Mr. Bright, when we say that Ginnie Mae is able to fine companies in this space, does that space include the VA? I mean, am I 

misunderstanding that the VA and Ginnie Mae operate in partnership and together to operate this program? 

Mr. BRIGHT. So Ginnie Mae has the authority to issue rules that 

pertain to lenders’ ability to access our security. So we have broad 

statutory authority to write rules for access to our security as we 

need to protect it. 

So if you actually look at Ginnie Mae’s charter, of our top five 

mandates, the first four relate to making sure that there is liquidity in the mortgage market and the ability to promulgate regulations to ensure that liquidity maintains in the mortgage market. 

Once we issue a rule to our issuers or the lending community 

and say, ‘‘Here are the rules that you need to abide by,’’ we have 

about an 800-hundred page issuer guide, if there are violations of 

that guide, we can issue civil money penalties. 

So our rulemaking ability is pretty much restricted to the ability 

to access the Ginnie Mae security and under what terms. We really 

can’t issue civil money penalties for violations of the VA program 

itself. That would be the VA. Nor could we issue civil money penalties for violation of consumer protection laws. That would be 

CFPB or the FCC. 

So what we have been doing in those cases is when we see instances where we think it is possible that some of those laws are 

being violated, we are making referrals to those relative agencies. 

So our CMPs, they pertain to violations of the rules that we put 

in place for access to our security. 

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Mr. TAKANO. Mr. Cooper, you said earlier that during the financial crisis that overall the VA home loans held up the best. To what 

do you attribute that? 

Mr. COOPER. Thank you for the question. 

We attribute that to the underwriting that was in place from the 

VA from well before the crisis. And specifically the way the VA 

looks at it is not just at how much, what is their payment, what 

is their DTI. They are also looking at the back end of, like, how 

much money do you have left over, their residual income. 

And so that is a really essential part of the program. Residual 

income, it protects the person from—at the end of the day, they 

still have money to live their daily life, and then they are still able 

to, hopefully, then they are still able to make their mortgage payments. That has been a really big part of the VA program. It is different from any other program that is out there. No one else requires that. 

Mr. TAKANO. Mr. London, again, do you have any other thoughts 

on appropriate regulation or appropriate authority that you might 

need to police the bad actors that we are talking about today more 

effectively? 

Mr. LONDON. Sure. As I mentioned in my testimony, we have a 

draft regulation that we believe will take into account the very recommendations that you have heard from other panelists today. We 

evaluated things like the net tangible benefit, seasoning requirements, and recoupment requirements, and many other actions to 

see what will best handle the issue. 

But I definitely have to get one point on the table. All the panelists agree that we are talking about a relatively small number of 

lenders who are involved in this. 

Mr. TAKANO. Very small. I realize that. 

Mr. LONDON. And the fact that we have drafted a rule very carefully that is going to not only impact those small number of actors, 

it is also going to impact every single veteran’s, potentially, their 

access to his or her earned benefit. It is going to have an impact 

potentially on every single lender and servicer that participates in 

the program. And as Mr. Bright and others say, it is also going to 

have a downstream effect on mortgage investors. 

So there is not just one answer or one thing that can be done. 

We looked at it holistically. And as I stated to the Chairman, we 

believe we have the statutory authority to regulate in those areas. 

Mr. TAKANO. And you haven’t published it yet because it is a 

draft, and so is there a kind of a comment period from the public 

that has to be undergone before it is implemented? 

Mr. LONDON. Yes. The rule is currently drafted as a proposed 

rule, and there will be an opportunity for public comment. 

Mr. TAKANO. And you don’t have any idea—I mean, you have 

been taking input from the industry in crafting the rule? 

Mr. LONDON. Absolutely. The good news is in analyzing and 

thinking about the rule, we met, as I mentioned in my testimony, 

we met with the Mortgage Bankers Association and their members 

and many other stakeholders as we were contemplating and evaluating what policy actions we needed to take under this draft regulation. And obviously we will welcome additional comments that 

anyone has to offer once the rule is published. 

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Mr. TAKANO. And when do you anticipate the rule being published? 

Mr. LONDON. Unfortunately, I don’t have a specific timeline for 

you today, but I am happy to report that the rule, as I say, is in 

final draft, and that is a good indication that we are very close to 

having it publicized in a relatively short timeframe, but I don’t 

have a specific timeframe for you today. 

Mr. TAKANO. All right. Well, thank you very much. 

And I yield back, Mr. Chairman. 

Mr. ARRINGTON. Mr. Takano, I will give you more time if you 

have any follow-up questions or comments. 

Mr. TAKANO. Mr. Chairman, just thank you very much for the 

spirit of this hearing, and I congratulate you on that. And I hope 

we can continue to work in this vein. 

I really do respect your free market views. I actually do entertain 

the thought that some of these products could be useful to some 

veterans, and we don’t want to be overly aggressive in regulation. 

But, again, we are talking about taxpayer resources that we have 

to protect. 

Mr. ARRINGTON. That is right. That is right. And it is good that 

we can agree like this, huh? Somebody get a picture. Is somebody 

recording this? 

No, it is true. I mean, this is a space where we need to engage 

on behalf of the taxpayer because of the full faith and credit, and 

we need to strike that balance. 

And that is why I asked the question of defining it. You know, 

how do you define this? Because if somebody was charged any fee, 

they may say, ‘‘Hey, I shouldn’t be charged for this.’’ But there is 

a cost to the institution for that transaction. 

So what is that threshold that is unreasonable and abusive and 

not a tangible benefit. Well, I feel like I have heard enough to 

know that the stakeholders, including the industry, can strike that 

and in fact have. And I give you credit and join the Ranking Member in his praising you and your team for the way you have conducted your business. 

It is best that a regulator engages the stakeholders prior to public comment. I mean, you are going to have agreement here, it 

seems like. And we are talking about a few potentially bad actors, 

potentially, and maybe not bad actors, maybe they are just playing 

with the rules that exist. We just need to tighten them up so that 

we raise the bar of what we expect for safe and sound practices and 

the protection, if you will, and minimal standards for fair practices. 

In this space, I am curious, because the FTC should be able to 

regulate unfair and deceptive practices. Have there been any cases 

referred to the FTC where there has been unfair and deceptive— 

and I understand there are lots of things going on here—they could 

disclose better, so let’s do that? There is safety and soundness for 

the taxpayer and the program, but then there is real deception and 

unscrupulousness by offering one thing and it be really another 

thing. 

Have those been referred to the FTC and have they acted upon 

those, Mr. London? 

Mr. LONDON. I am not personally aware of any referrals that 

have been made. 

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Mr. ARRINGTON. Mr. Bright? 

Mr. BRIGHT. Yeah. What we have been doing is collecting solicitation materials that are generally from actually brokers, not lenders themselves, but then what they do is they originate these loans 

and then sell them to a lender. 

And what I would love to do is we have got a pile of them, so 

I have asked all the veterans at Ginnie Mae to sort of collect these 

solicitation materials they get. I will share them with you. 

They are not lies, they are just—we will sit down and talk to 

them. 

Mr. ARRINGTON. So I am trying to be real careful even in this 

hearing to not say ‘‘predatory’’ and ‘‘deceptive.’’ 

Mr. BRIGHT. Right. Right. 

Mr. ARRINGTON. Because the FTC ought to pursue that and bring 

the full force of the law against people that are doing that. 

And then where we need to tighten it up, where there is some 

fastness and looseness, that is what you guys can do. And then 

again for me ultimately, the safety and soundness of the program. 

This is offered because the taxpayers allowed this to happen, because they love their veterans and they want them to have this 

benefit, but they want it done in a safe and sound and a fiscally 

responsible way. 

Mr. LONDON. Mr. Chairman, if I may, can I amend my comment 

that I made? 

Mr. ARRINGTON. Yeah, please. 

Mr. LONDON. Because your question was specific to the FTC. 

Mr. ARRINGTON. Yes. 

Mr. ARRINGTON. Okay. Thank you. 

Thank you, colleagues. Great discussion. 

Let’s continue in your efforts as you described to tighten up in 

this space, and let us see whatever draft documents just for our information, as the Ranking Member requested, if you would, and 

continue to notify us if you need the authority where you don’t and 

don’t regulate where you don’t have the authority. That is not your 

job. That is the United States Congress’ job, Article I. But I feel 

good about what I have heard today. So good hearing. 

This now concludes our hearing. And I ask unanimous consent 

that all Members have 5 legislative days in which to revise and extend their remarks and include any extraneous material on today’s 

hearing. 

Without objection, so ordered. 

Thank you all again being here today. Great hearing. God bless. 

[Whereupon, at 11:23 a.m., the Subcommittee was adjourned.] 

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A P P E N D I X 

Prepared Statement of Jeffrey London 

Good morning Chairman Arrington, Ranking Member O’Rourke, and other Members of the Subcommittee. Thank you for the opportunity to appear before you today 

to discuss the Department of Veterans Affairs (VA) Home Loan Guaranty Service, 

certain lenders’ home loan churning practices, and the effects of those practices on 

Servicemembers and Veterans. I am accompanied by Mr. John Bell, Deputy Director, Loan Guaranty Service. 

Overview 

The mission of VA’s Home Loan Guaranty Service is to maximize opportunities 

for Servicemembers and Veterans to obtain, retain, and adapt their homes by providing viable and fiscally responsible benefits in recognition of their service to our 

country. 

We empower Servicemembers and Veterans with information and access to innovative, high-quality products and services, and we engage industry partners to make 

loans in an efficient and effective manner. Through our focus on Servicemembers 

and Veterans, the partnerships we have developed, and our continuous drive to innovate in areas of operations and performance, we have built a high-performing program that has provided guaranties for more than 23 million loans totaling in excess 

of $2 trillion over the last 70-plus years. Last fiscal year alone, VA guaranteed an 

all-time record of over 740,000 loans, totaling more than $189 billion. Of those 

loans, over 380,000 were purchase loans (an annual record for purchase loans), 

nearly 191,000 were interest rate reduction refinancing loans (IRRRL), and about 

167,000 were cash-out refinancing loans. Over the past four fiscal years, the vast 

majority of VA-guaranteed loans have been purchase and cash-out refinance loans; 

not IRRRLs. VA’s purchase loan volume has ranged from about 62 percent of all 

guaranteed loans in Fiscal Year (FY) 2014 to just over 51 percent last fiscal year. 

Cash-out loans have ranged from roughly 16 percent of guaranteed loans in FY 2014 

to just shy of 23 percent last fiscal year. IRRRLs were roughly 21 percent of guaranteed loan volume in FY 2014 and roughly 26 percent last fiscal year. VA has provided more loan guaranties over the past 5 fiscal years (approximately 3.1 million) 

than it did in the 10 years prior (approximately 2.9 million). 

The overwhelming majority of VA-guaranteed loans (upwards of 98 percent) are 

sold in the secondary mortgage market with a full faith and credit guaranty from 

the Government National Mortgage Association (GNMA or Ginnie Mae). GNMA’s 

role in the secondary market provides the necessary liquidity of capital so that lenders can then fund additional mortgage loans (e.g., additional VA-guaranteed loans 

to Servicemembers and Veterans). 

Program Success 

The VA-guaranteed home loan benefit helps provide Servicemembers and Veterans with access to a low-cost mortgage option. VA-guaranteed loans require low 

or no down payment, require no private mortgage insurance, and often have lower 

interest rates than other products. According to industry data, interest rates for VAguaranteed loans have been the lowest in the marketplace for over 2 years. 

VA loans perform very well compared to other government loan programs and 

conventional loans. During the worst housing-market crash since the Great Depression, VA helped almost 700,000 Servicemembers, Veterans, and their families retain 

their homes or otherwise avoid foreclosure. Cumulatively, for the period between fiscal years 2009 and 2017, VA worked with private sector loan servicers to avoid foreclosure for over 80 percent of Servicemembers and/or Veteran borrowers who defaulted on their home loans. This equates to the government avoiding over $22 billion in foreclosure claim payments. Further, VA’s foreclosure inventory rate (the 

percentage of loans in foreclosure) outperformed that of even prime loans during, 

and immediately following, the market crash. 

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VA’s portfolio of about 2.9 million active home loans outperforms or is on-par with 

other loan types. According to the most recently available Mortgage Bankers Association National Delinquency Survey data (Q3 2017), VA’s overall delinquency rate 

of 4.24 percent is just slightly higher than the 3.97 rate for Conventional loans. This 

compares favorably to the 9.4 percent delinquency rate for the Federal Housing 

Authority’s (FHA) loan program. In terms of serious delinquencies and foreclosure 

inventory, VA outperforms all other loan types. According to the most recently available Mortgage Bankers Association National Delinquency Survey data (2017 third 

quarter), VA has the lowest foreclosure inventory rate in the industry: 0.95 percent 

compared to 1.15 percent for Conventional loans and 1.76 percent for FHA loans. 

VA also has the lowest seriously delinquent rate: 2.08 percent compared to 2.28 percent for Conventional loans and 3.86 percent for FHA loans. This means that of the 

over 2.9 million active VA loans, only 2.08 percent are 90-days or more past-due and 

less than one percent are in foreclosure. 

Refinance Loan Program Overview 

There are two types of VA refinance loans. The first, an IRRRL, is generally used 

by Servicemembers or Veterans to obtain a lower interest rate than the current rate 

the Servicemember or Veteran is paying on his or her existing home loan. IRRRLs 

are sometimes called streamlined refinances because they have fewer underwriting 

requirements than other types of refinance loans. The purpose of an IRRRL is to 

place a Servicemember or Veteran in a better financial position than he or she is 

in on an existing mortgage, typically by reducing the interest rate on the existing 

loan, which lowers the monthly mortgage payments. An IRRRL may also be used 

in order to (i) reduce the term of the loan, thereby reducing the total of payments 

on the loan, (ii) to convert an adjustable rate mortgage to a loan with a fixed interest rate, or (iii) to make energy efficient improvements to the home. A 

Servicemember or Veteran may not use an IRRRL to obtain cash for the equity he 

or she may have in the property securing the loan. 

A second type of VA refinance loan is one in which a Servicemember or Veteran 

may also use the home loan benefit to refinance an existing loan or other lien (not 

necessarily a VA-guaranteed loan) and borrow against the value of the property that 

is the security for the existing loan. In other words, a Veteran may ‘‘pull cash’’ out 

of the home’s equity using a ‘‘regular,’’ non-IRRRL, refinancing loan. 

Refinance Loan Challenges 

While the overwhelming majority of lenders (more than 1,500) who originate 

IRRRLs are conducting business with Servicemembers and Veterans in a responsible manner, we have in recent months identified a very small number of lenders 

(arguably less than 10) that appear to regularly close loans in a manner inconsistent 

with the program’s intent. Instead of offering loan products that provide a tangible 

benefit to borrowers, these lenders appear to be targeting Servicemembers and Veterans who have made less than six payments on their original loan. 

The practice of refinancing a mortgage multiple times within short timeframes is 

called ‘‘serial refinancing’’ or ‘‘loan churning,’’ and it may cause Servicemembers and 

Veterans to prolong debt repayment by adding more payments and interest to the 

new loan. Serial refinancing of VA-guaranteed loans may also strip equity, increase 

the principal balance, and increase the loan-to-value ratio, which potentially raises 

the risk of loan default. In addition, the unpredictability of when and how often 

these refinances take place is causing investors to be pessimistic about purchasing 

GNMA-backed loan pools, due to the perceived risk associated with buying debt that 

will be paid off in a shorter time frame than the investors anticipated at the time 

of pricing. This risk of prepayment affects pricing, which could cause lenders to offset the difference by charging higher interest rates for VA-guaranteed loans. 

In order to entice Veterans to refinance their mortgages, a small number of lenders have also implemented aggressive and often misleading marketing practices, 

such as phone solicitations or frequently mailed print materials. It is concerning 

that such loans can have terms that may not be in the Servicemember’s or Veteran’s 

best financial interest. 

Our colleagues at GNMA have frequently espoused in recent months that the impacts felt by investors in the secondary markets have been acute. Lenders who systematically engage in serial refinancing, or ‘‘churning,’’ VA loans have focused almost exclusively on IRRRLs, which, unlike VA origination and cash-out loans, do 

not require underwriting or valuation determinations. These lenders have focused 

their efforts on targeting Servicemembers and Veterans who have VA-guaranteed 

loans precisely because IRRRLs are relatively inexpensive and quickly completed. 

It is important to note that although VA’s overall loan volume has been historically 

high over the past four fiscal years, on average, IRRRLs have represented about 

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only a third of VA’s overall volume for FY 2015 and FY 2016. VA notes, however, 

that only a small number of lenders are systematically engaging in churning practices, and a relatively small number of Veterans have been affected. VA estimates 

that approximately 8,000 Veterans obtained two or more IRRRLs (or about 4 percent of the IRRRL volume) in FY 2016. That number declined significantly in FY 

2017 to approximately 1,600 Veterans who obtained two or more IRRRLs (or about 

0.8 percent of the IRRRL volume). . 

VA Focus on Serial Refinancing 

Even though the serial refinancing issue is not systemic to our overall portfolio, 

VA has over the past several years been very concerned about serial refinancing or 

‘‘churning,’’ in the IRRRL program. In fact, when VA published an Interim Final 

Rule (IFR) on May 9, 2014, implementing provisions of the Dodd-Frank Act, VA defined the types of VA loans that are ‘‘qualified mortgages,’’ and addressed this very 

issue. Pursuant to the Ability-to-Repay provisions of the Truth in Lending Act, 

qualified mortgages have either safe harbor protection or the presumption that the 

borrower is able to repay a loan. In the IFR, VA established that in order for an 

IRRRL to be considered a safe harbor qualified mortgage, the loan being refinanced 

must meet certain seasoning and recoupment requirements to prevent serial refinancing and equity skimming. 

VA believed that the IFR would eliminate the demand for loans that did not receive the safe harbor protections. In other words, VA intended for the market to use 

pricing differentials to deter churning practices. However, this did not occur. Despite 

VA’s intention to prevent serial refinancing, some lenders ignored the seasoning and 

recoupment guidelines because VA would still guarantee the loan if other requirements were met. In response, VA has been evaluating program and industry data 

related to IRRRLs to ascertain the overall impact on the VA Home Loan Guaranty 

Program and to determine what policy changes could be made to curb serial refinancing. 

While VA’s focus has been on serial refinancing of IRRRLs, we realize that some 

lenders may be shifting their business models in response to current market conditions. Although credit underwriting and appraisal requirements provide guard 

against affordability and valuation concerns, VA has been examining VA and other 

industry data to ensure that our Regular/Cash-out refinance programs are also serving their intended purpose as loans that benefit our Veteran borrowers. There are 

multiple factors that VA believes will contribute to the reduction of serial refinancing practices. In addition to longer-term measures like regulatory action, VA 

has also focused attention on policy changes that can be implemented rather quickly. For example, VA has worked closely with GNMA to curb some serial refinancing 

practices. This effort resulted in the issuance of an October 2016 GNMA All Participants Memorandum (APM). The APM established a 6-month seasoning requirement 

for streamlined refinance loans, which includes IRRRLs, to be eligible for certain 

GNMA issuer pools. Since the GNMA policy became effective in February 2017, VA’s 

overall IRRRL volume has declined from over 35,000 loans per month to approximately 8,000 loans per month. VA also saw a decline in the number of potential 

serial refinance actions between FY 2016 and FY 2017. As mentioned previously, 

VA estimates that the number of Veterans affected by serial refinances is much 

smaller than the overall IRRRL portfolio, declining from approximately 8,000 in fiscal year 2016 to approximately 1,600 in fiscal year 2017. In short, there was a significant decline in the number of multiple loans by the same Servicemember or Veteran for the same property in a given year. 

In October 2017, VA and GNMA established a ‘‘Joint Ginnie Mae - VA Refinance 

Loan Task Force.’’ As stated in the press release announcing the partnership, ‘‘The 

task force will focus on examining critical issues, important data and lender behaviors related to refinancing loans, and will determine what program and policy 

changes should be made by the agencies to ensure these loans do not pose an undue 

risk or burden to Veterans or the American taxpayer.’’ On December 7, 2017, the 

taskforce issued a GNMA APM, which established a 6-month seasoning requirement 

for streamlined and cash-out refinancing loans to be eligible for certain GNMA securities. 

In addition to VA’s work with GNMA, VA has worked with the Consumer Financial Protection Bureau (CFPB) over the last several years to address complaints 

from Servicemembers and Veterans about misleading solicitations to refinance VAguaranteed loans. VA and CFPB’s Office of Military Affairs have monthly meetings 

to discuss issues and establish plans to educate the Servicemember and Veteran 

communities about issues regarding VA-guaranteed loans. In November 2017, VA 

and CFPB issued our first Warning Order to Servicemembers and Veterans who 

currently have a VA-guaranteed loan. The Warning Order provided information on 

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what to consider when receiving advertisements and when thinking about refinancing an existing VA-guaranteed loan. Specifically, the Warning Order advised 

Servicemembers and Veterans of the dangers associated with solicitations that 

promise extremely low interest rates, thousands of dollars in cash back, and skipped 

mortgage payments. 

While the collaboration with GNMA and CFPB has helped to address the serial 

refinancing problem, VA plans to further address churning practices by issuing a 

proposed rulemaking. In determining what policy actions to take, VA is evaluating 

a range of possible measures - such as net tangible benefit tests, seasoning requirements, recoupment requirements, and others - and the effects that the measures 

might have on Servicemembers’ or Veterans’ access to their earned benefits, as well 

as, the impact on lenders, servicers, and mortgage investors. 

Conclusion 

Mr. Chairman, with the continued high volume of loans in the VA Home Loan 

Guaranty Program, the coming months at VA will continue to be busy and challenging, but I know we will continue to provide our country’s Servicemembers and 

Veterans with a safe and viable loan guaranty option. Thank you for your continued 

support of our programs and for this opportunity to speak today. 

This concludes my testimony, and I welcome any questions that you or other 

Members of the Subcommittee may have. 

f 

Prepared Statement of Michael R. Bright 

Introduction 

Chairman Arrington, Ranking Member O’Rourke, and Members of the Subcommittee, thank you for inviting me to appear today to discuss the important 

issues regarding aggressive practices by some lenders in the VA market, and the 

impact this is having on veteran borrowers. 

Role of Ginnie Mae in the Market 

For background, the Government National Mortgage Association, or ‘‘Ginnie Mae,’’ 

was established in 1968 with the mission of bringing global capital into the U.S. 

housing market while at the same time minimizing risk to the American taxpayer. 

Ginnie Mae does this by guaranteeing the timely payment of principal and interest 

to our bond holders on behalf of borrowers who qualify for our program. By allowing 

these investors the opportunity to lend capital into the U.S. housing finance system 

with the knowledge that the federal government stands behind the credit risk of our 

mortgage-backed securities (‘‘MBS’’), Ginnie Mae provides access to global capital for 

lenders of all sizes and supports the federal mortgage insurance programs at the 

Federal Housing Administration, the Department of Veterans Affairs, the Department of Agriculture, and HUD’s Public and Indian Housing. Ultimately, more than 

98 percent of the loans insured by the FHA, VA, and USDA are financed through 

Ginnie Mae MBS. 

Ginnie Mae provides this government backstop on qualifying MBS to protect 

against losses in catastrophic situations, and our securities are the only MBS to 

carry the explicit full faith and credit guaranty of the U.S. government. We are also 

responsible for policing our program to protect against loss. Our statutory mission 

is to provide liquidity to the U.S. housing market and to protect taxpayers. 

Since 1968, Ginnie Mae has performed these twin missions successfully, growing 

to almost $2 trillion in outstanding principal balance guaranteed today. This has 

helped millions of low-and-moderate income, veteran, and rural Americans obtain 

financing that otherwise would not be available to them. Just as important, Ginnie 

Mae has never needed an emergency infusion of funds to do its job, even during the 

2008 financial crisis. The design features of the Ginnie Mae model significantly limit 

taxpayer exposure to risks typically associated with secondary market transactions 

while still providing liquidity for the overall housing finance system. 

The easiest way to understand Ginnie Mae’s mission is that we oversee a process 

for ensuring the success of the government’s MBS guarantee. To accomplish this, 

Ginnie Mae manages technology and infrastructure designed to track the payment 

of principal and interest, made by borrowers to their lenders, making sure it ultimately gets into our common security and to investors on time and in full every single month. When a low-income borrower in an FHA loan, a rural borrower in a 

USDA loan, or a veteran borrower in a VA loan makes a mortgage payment, we 

make sure the servicer of the mortgage submits that payment to the investor who 

owns the MBS. If we do our job well, veterans gain access to more affordable home 

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1Par simply means a bond that trades at 100 cents on the dollar, often denoted as ‘‘100–00.’’ 

Most Ginnie MBS trade above this price today. Specifically, prices closer to 105. This means 

every time a lender pulls a loan from a pool at par and redelivers it into a new security at 105, 

it books 5 points (or 5% of the loan balance) as profit. 

financing terms, and the capital necessary to make these loans remain reliably 

available through all economic cycles. 

VA Loan Churn Background 

The issue we are here to talk about today - the rapid refinance of VA loans held 

in Ginnie Mae securities - has had a significant impact on Ginnie Mae MBS market 

trading and pricing dynamics over the past few years. I thank you very much for 

bringing attention to this issue. Hopefully increased Congressional and federal agency oversight can help effectuate some needed changes in behavior. 

At times what we are here to discuss may seem like a technical issue, but the 

consequences are anything but. Without proper policing by Ginnie Mae or the VA, 

every single veteran who relies on our program will pay a higher rate than they 

should. If we take for granted the capital that makes our program work, it may not 

continue to flow into our market. That is not a risk we should take. 

It is difficult to describe what is transpiring without using jargon or technical 

terms like ‘‘prepayment speeds,’’ ‘‘loan seasoning,’’ and ‘‘premium MBS pricing.’’ But 

ultimately what we care about is the following: if our security is not functioning 

well, veterans will have difficulty getting a home loan, and if they do get a loan they 

will pay a higher rate. Since this ‘‘loan churn’’ problem began, Ginnie has recognized 

that failure to curtail these practices could ultimately harm borrowers in the form 

of higher interest rates. That is why we take this issue incredibly seriously, and 

why we pledge to you today that we are working hard to put an end to it once and 

for all. 

In early 2016, Ginnie Mae and our investors first began to identify early loan repayments and serial refinancing as a problem with much greater incidence in the 

VA mortgages in our securities than loans insured by other agencies. Mortgage 

loans often prepay, especially when interest rates drop. But Ginnie Mae began to 

notice prepayments at speeds that could in no way be justified by economic factors. 

Some strange pricing dynamics in our security - specifically a weakening of Ginnie 

MBS prices versus other MBS - further alerted us to the growth of anomalous refinancing behaviors. Clearly, Ginnie Mae investors had begun to take note as well. 

After some initial internal analysis, it became more obvious that some lenders had 

apparently found an opportunity to take advantage of service members and veterans 

to make a quick profit for themselves by aggressively pushing a series of loan refinance offers. These are done without any regard for the consequences for our security, other veterans, or other borrowers who rely on our program. 

It seems that the core issue stems from two fundamental, underlying dynamics. 

First, we have an increasing number of veterans in the United States, and many 

of them fall prey to advertising schemes that give the appearance of coming from 

reputable sources. Second, the Ginnie Mae security trades at a premium price, and 

this incentivizes lenders to pull loans from pools at ‘‘par 1 ’’ and deliver them into 

a security at a premium, booking a profit each time this occurs. We believe it may 

be the confluence of these factors that has enabled this new, unacceptable and dangerous market behavior. 

Upon further investigation, we believe that some lenders have capitalized on 

these dynamics by employing two patterns of note. The first is the origination of 

a loan substantially above prevailing market interest rates, sometimes called a ‘‘premium loan.’’ At times these loans may include debt consolidation, and at times they 

are provided to borrowers with very low credit scores, which explains some of the 

reasons that they carry high interest rates. But often our analysis has found that 

premium VA loans simply represent a business model of using aggressive marketing 

tactics to originate a loan at an interest rate higher than the veteran borrower 

should otherwise be paying, as proven by the rapid refinance that occurs almost immediately thereafter. 

These loans are profitable for the company originating the loan and issuing the 

loan into a Ginnie Mae security because they can immediately sell the loan into a 

Ginnie Mae MBS pool at a high dollar price because of the high accompanying interest rate, and pocket the so-called ‘‘cash gain on sale.’’ This essentially means those 

lenders who originate high interest rate loans charge veterans too much and book 

a large profit right up front, knowing that the veteran has a rate that is above market and knowing that the veteran will likely refinance in the future to obtain a true 

market rate. These loans not only give the borrower an interest rate half of one percentage point or more above what they could be paying, but they are ripe to be cherLeonard.horne on VACREP0180 with DISTILLER

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ry-picked out of a Ginnie security by that same lender or another lender looking to 

profit on a quick refinance. 

And this is when we see another tactic used by many lenders - a quick refinance, 

or sometimes multiple refinances, of a premium loan. Soon after a veteran’s first 

loan closes, veterans begin to immediately receive a constant stream of solicitations 

for refinance offers from other companies using the data from the first loan closing. 

These offers promise anything from skipping a few monthly payments to taking 

cash out to lowering a rate by getting into an adjustable rate mortgage. Many of 

the solicitations appear misleading, but many also prove successful, as we see veteran borrowers being convinced to refinance their loans multiple times in a year 

without much tangible benefit. 

This entire scheme relies on a steady stream of veterans who may not be exceptionally financially savvy, or may be having financial difficulties making them desperate for some cash, which these offers often promise to help fix. 

In many cases, a single veteran is refinanced multiple times in less than a oneyear period, sometimes, according to our data, with very limited benefit to the veteran. Sometimes, in fact, with each refinance the veteran is seeing his or her loan 

balance grow. According to many of the flyers and advertisements we’ve collected, 

quite often the fees to refinance are buried or hidden. The refinances, advertised 

with teaser rates and no money down, are in many cases leaving veteran borrowers 

further and further in debt, while providing minimal monthly cost savings. 

In reviewing recent months’ data on VA refinances, we have found the average cost of doing a fixed rate to fixed rate refinance is approximately $6,000 in fees, for 

an average payment savings of $90 per month. That means it will take the veteran 

five and a half years to break even on the fees incurred for the refinance. 

Another alarming development that you need to be aware of is that, with interest 

rates having bottomed out and opportunities to refinance from a fixed rate loan into 

a new fixed rate loan having been exhausted, we are now seeing a trend of brokers 

and lenders marketing the refinancing from a fixed rate loan into an adjustable rate 

mortgage. When veterans do this, the new loan may result in a short-term teaser 

rate that lowers the borrowers’ monthly payment, but could also result in higher 

monthly payments for the borrower in the future. For refinances from fixed rate to 

adjustable rate loans, the average is $12,000 in fees for a monthly payment savings 

of $140 and seven years to break even, assuming the mortgage rate doesn’t adjust 

upward. 

Additionally, as home prices have risen in recent years, some lenders have come 

to specialize in the ‘‘cash out refinance’’ business. There is nothing wrong with helping veterans take advantage of this benefit. But our data raises some pretty serious 

questions, for example we see loans where borrower credit characteristics appear to 

change inexplicably from one month to another. And, we are seeing the creation of 

a large group of veterans who once had equity in their home but no longer do after 

the cash out refinance. In these instances, if a veteran borrower someday chooses 

to move, he or she might need to bring a check to the closing to do so. In our view, 

this is an area of concern. 

Finally, we now also see offers by refinance lenders to refund the tax and insurance escrows normally maintained by the servicer and accumulated as part of the 

monthly ‘‘PITI’’ (principal and interest, taxes and insurance) mortgage payment. In 

these cases, the veteran is lured in by a scheme to skip a mortgage payment while 

the new loan is initiated, get an escrow refund, and look at the monthly payment 

without an escrow charge, with the closing costs folded into the loan. This tactic can 

lead to larger mortgages, more debt and the veteran paying a lot of money in fees 

for a riskier mortgage without sufficient escrows. 

The bottom line is that marketing and promotional materials being received by 

many veterans today often include misleading terms that are too good to be true. 

These mailers are also frequently disguised as checks or documents appearing to be 

official correspondence from the Department(s) of Defense or Veterans Affairs, or 

the IRS, instructing the veteran to call the number listed to discuss their VA benefits, or a similar ploy. 

Investors and the MBS Market 

Beyond the problems created for individual veteran borrowers targeted for high 

rates or rapid refinancing, loan churning has serious implications for the broader 

mortgage market as well. In recent years, investors have priced Ginnie Mae bonds 

at a premium to the conventional market due to the explicit government guaranty. 

This premium directly translates into lower interest rates enjoyed by veterans as 

well as borrowers from the other government loan programs. As the VA loan program has grown as a percentage of the Ginnie Mae portfolio, the increase in loan 

churning activity has also become more apparent and an increasing area of concern. 

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2 Because the loan churning problem has been most pronounced in the VA loans in our pools, 

this testimony focuses on the veteran loan experience as we have observed it. However, Ginnie 

Mae single-family MBS pools comingle VA, FHA, RD and PIH loans in the pools. The consequence is that a detracting feature of one agency’s program that results in a loss of value for 

that agency’s mortgage loans, will have an effect on the price of the overall MBS and, therefore, 

all of the government loans will suffer a loss in value at the risk of entailing higher interest 

rates. 

Loan churning is a problem for investors because, as loans are refinanced, they 

are removed from MBS pools and with them, the return expected from the monthly 

principal and interest payments. Because of this increased prepayment risk, investors are today less willing to price Ginnie Mae bonds at a premium (or, as noted 

above, a price above ‘‘par’’). A reduction in investor demand puts downward pressure 

on the prices of Ginnie Mae securities, which ultimately harms veterans by increasing borrowing costs, since as bond prices fall, interest rates offered to borrowers increase. And, because loans from the other government loan programs are comingled 

in Ginnie Mae securities, borrowers in the other government loan programs are paying the increased costs as well. This represents a direct wealth transfer from VA, 

FHA, USDA, and PIH borrows to a relatively small number of VA lenders who 

abuse our program. 2

These challenges are not theoretical. They very much exist today and impact the 

rates that all FHA, VA, and USDA borrowers pay every month. As recently as December of last year, Ginnie Mae leadership spoke directly with several large foreign 

institutional investors regarding their ongoing investment in Ginnie Mae MBS. A 

common theme in every conversation was concerns about the VA loan churn issue 

and its impact on their investment in Ginnie Mae MBS. The foreign investor market, particularly central banks and government pension funds, has been a major 

source of capital for the Ginnie Mae program, and we have no choice but to take 

these concerns very seriously. The inability to model and price Ginnie Mae MBS due 

to the unpredictable nature of the rapid prepayment speeds on Ginnie Mae bonds 

is a serious challenge for any securitization program and all who rely on it. If this 

dynamic continues and investors choose to flee the Ginnie Mae market, it could very 

well cause even higher borrowing cost for all veterans and others in the coming 

years. 

To mitigate this problem in the short-term, we have been outlining for these investors the additional steps we are taking. We must take these risks seriously at 

all times, and we must deliver on tangible solutions this year. 

Ginnie Mae Changes, Task Force, and Upcoming Actions 

Broadly, we believe the long-term solution to this issue comes in three steps. The 

first is through Ginnie Mae tightening its requirements for access to our security 

when we see patterns of injurious behavior. We have taken some steps here and 

more will be forthcoming throughout 2018, including the elimination of premium 

loans from our securities. The second is by VA establishing a solid framework that 

would ensure veterans are protected from predatory lending practices, including excessive fees, thereby ensuring any refinance represents a tangible benefit to the veteran. The third is the continuous surveillance of data collection and analysis to enforce adherence to the first two steps. 

Looking at these steps in more detail, I will begin by outlining the actions that 

Ginnie took in 2016, but more importantly the actions we plan for 2018. 

In late 2016, in order to attempt to combat these practices, Ginnie made an initial 

program change to the Ginnie Mae rules in an attempt to address the issue within 

Ginnie Mae’s legal and regulatory authority. Specifically, we changed rules on how 

soon after one mortgage loan is originated, a streamline refinance transaction of 

that same loan could be pooled into a Ginnie Mae security. 

Those initial measures were successful in stopping the rapid refinance practices 

with many lenders for a short period of time. However, after the first required sixmonth seasoning period lapsed following the effective date of the 2016 rule, in mid2017 Ginnie Mae again saw an increase in loan repayments and securitization that 

strongly suggested further steps were needed. Notably, we also saw that some lenders had actively worked to evade the new rules Ginnie Mae implemented by changing their tactics. For example, some lenders starting using ‘‘cash-out’’ or other types 

of refinances, which were not addressed by the 2016 rule change. 

As part of our ongoing effort to curtail these practices and to protect the health 

of our security, in December of 2017 Ginnie Mae announced a strengthened rule, 

saying that absolutely no refinances, including both streamline and cash-out refinance loans, will be permitted into Ginnie pools for six months after origination of 

the underlying loan, thus eliminating the loophole that some lenders used to evade 

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our original 2016 rules. We also announced the outline of the additional steps we 

will be taking in the coming weeks to continue to put a stop to this behavior, which 

I will discuss in more detail below. 

As it has been widely reported, in late 2017 Ginnie Mae and VA formed the 

Ginnie Mae - VA Refinance Loan Task Force to continue and to intensify our work 

on this issue. The task force meets regularly and is focused on closely examining 

the issue as a team, gathering market data, and reviewing lender behaviors related 

to refinancing loans to determine the program and policy changes needed to stop 

detrimental market behavior. At its core, the task force is in place to make changes 

that stop bad actors from posing an undue risk or burden to veterans or the American taxpayer. 

The first action to come out of the task force is the change Ginnie Mae announced 

early last month - the expansion of the loan seasoning requirements for cash-out 

refinance loans securitized into Ginnie Mae securities. But we do not intend to stop 

there. To help identify market outliers, we have also greatly increased the tracking 

and analysis of the prepayment rates of issuer portfolios. An inexplicably fast prepayment rate is an indication that the lender is aggressively churning borrowers 

without regard to whether or not a refinance actually benefits a veteran. As such, 

in 2018, any issuer with pool performance that appears materially out of step with 

market peers will receive increased attention and engagement from Ginnie Mae, 

and we will be putting such lenders on notice in the coming weeks. 

Furthermore, we recently announced that prepayment information will be included in Ginnie Mae’s internal Issuer Operational Performance Profile (‘‘IOPP’’) 

scorecard. This scorecard is used to evaluate issuers against their peers, and it is 

the first set of data we look to in evaluating an issuer on a regular basis. Appropriate action will be taken against issuers found to be consistent outliers, potentially 

including removing them from the Ginnie flagship (‘‘Ginnie II’’) security. 

An additional change we are actively working to address is the definition of a premium rate loan as it pertains to their permissibility in the Ginnie Mae standard 

MBS pools. These loans, which I discussed earlier in my testimony, are identified 

as having an interest rate spread of more than 150 basis points in rate (or 1.50%) 

above prevailing market interest rates for Ginnie securities. We will soon be announcing definition and operational processes that will clarify our definition of a 

premium loan and enable the enforcement of this rule. We believe this will help to 

curtail abusive origination practices and slow Ginnie Mae prepayment speeds, lessen investor concerns over the health of our security, while at the same time helping 

prevent veterans from paying more on a loan than they otherwise should. 

Finally, it is worth noting that we have received whistleblower calls from employees who work in firms that they believe are engaging in unethical churning of veteran loans. Ginnie Mae does not today have sufficient legal authority to offer whistleblower protections to these individuals, but, because our securities are traded, the 

SEC does, and so we have connected these individuals with the SEC. At the same 

time, we have been receiving complaints from veteran borrowers about aggressive 

solicitation practices, and we have alerted the Consumer Financial Protection Bureau (CFPB). 

Conclusion 

In conclusion, I believe that 2018 will be an inflection point for this issue. 

Changes must be made to finally put a stop to bad actors abusing the VA home loan 

program and the Ginnie Mae security, delivering harmful loan products to veterans, 

and jeopardizing the efficient borrowing costs for all government borrowers. 

I very much appreciate the opportunity to discuss this critical issue and to work 

with Congress to bring increased attention to lending practices that are negatively 

impacting many Americans. At Ginnie Mae we are determined to continue our efforts until concrete solutions have been implemented that protect veterans, the 

Ginnie Mae program, and ultimately the American taxpayer. Thank you again, for 

inviting me to testify today. I look forward to answering your questions. 

f 

Prepared Statement of J. David Motley 

Chairman Arrington, Ranking Member O’Rourke, and members of the subcommittee, thank you for the opportunity to testify on behalf of the Mortgage Bankers Association (MBA). My name is Dave Motley, and I am President of Colonial 

Savings, a privately-held, federally-chartered thrift headquartered in Fort Worth, 

Texas. I also currently hold the position of Chairman of the MBA. I am a Certified 

Mortgage Banker (CMB), and I have previously served as a Board member of the 

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Texas MBA and a member of the Community Bank Advisory Council of the Consumer Financial Protection Bureau (CFPB). 

MBA is the national association representing the real estate finance industry, an 

industry that employs more than 280,000 people in virtually every community in 

the country. The association works to ensure the continued strength of the nation’s 

residential and commercial real estate markets, to expand homeownership, and to 

extend access to affordable housing to all Americans. MBA promotes fair and ethical 

lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. 

MBA’s membership of over 2,300 companies represents all elements of real estate 

finance, including firms serving both the single-family and commercial/multifamily 

markets. Our membership features commercial banks, community banks, credit 

unions, independent mortgage bankers, investors, brokers, conduits, and industry 

vendors, among others. 

I applaud the subcommittee for its efforts to better understand problematic practices with respect to certain mortgage refinances marketed to servicemembers and 

veterans of the U.S. military. Servicemembers and veterans generally benefit from 

the streamlined process for refinancing mortgages backed by a partial guarantee 

from the U.S. Department of Veterans Affairs (VA). However, recent activity in this 

market appears to be resulting in increased fee income for a small group of lenders 

while leaving some borrowers in a worse economic position. Such conduct is unacceptable and should be put to an end. 

The remainder of my testimony will describe the VA mortgage market, the mechanics of loan ‘‘churning,’’ the harm caused to borrowers by such churning, and options for addressing the recent churning we have witnessed in the market. 

The VA Mortgage Market 

VA mortgage loan programs play an important role in increasing the availability 

of mortgage credit for servicemembers, veterans, and surviving spouses. By guaranteeing a portion of the loan balance, VA enables lenders to offer loans with more 

favorable terms, such as no required downpayment. The VA share of the mortgage 

market has grown over the past decade, constituting 10.3 percent of total originations in 2016 versus 1.2 percent of total originations in 2007. Among purchase loans, 

the VA share has increased from 2.4 percent to 9.2 percent over this period, while 

the VA share of refinances increased from 0.3 percent to 11.5 percent (see Figure 

1). 

While borrowers seeking to refinance their VA loans may apply and be evaluated 

through their lender’s full underwriting process, the VA Interest Rate Reduction Refinance Loan (IRRRL) allows for a streamlined refinance process that is often faster 

and entails lower costs. For example, IRRRLs do not require a traditional appraisal 

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or credit underwriting package and can be originated with no additional funds provided by the borrower at the time of closing. IRRRLs are, however, limited to VAto-VA refinances on properties for which the borrower has already used his or her 

VA loan eligibility, and the borrower cannot receive cash from the loan proceeds. 

Generally, refinancing via an IRRRL allows the borrower to lower the interest 

rate on the mortgage. In doing so, the lender may charge the borrower origination 

fees, which are sometimes paid by the borrower at origination and in other cases 

are rolled into the principal balance of the loan. Depending upon the magnitude of 

both the fees and the interest rate reduction, it may take the borrower a number 

of years to recognize a net economic benefit on the refinance. The period of time 

after which the fees are fully recovered through lower interest payments is known 

as the ‘‘recoupment period.’’ The longer the recoupment period, the less likely it is 

for a borrower to ultimately recognize a net economic benefit from the refinance. 

Loan Churning 

Most lenders with VA loan products offer both purchase and refinance loans to 

their servicemember and veteran customers. However, the recent extended period 

of low interest rates has encouraged some lenders to specialize in marketing and 

originating IRRRLs. A smaller subset of these lenders, who in many cases are not 

the lenders that originated the initial purchase loan, have reportedly undertaken 

aggressive-and potentially misleading-advertising and solicitation campaigns to generate increased IRRRL volume. In some cases, this advertising or soliciting targets 

VA borrowers who have already recently engaged in an IRRRL, convincing them to 

refinance yet again to lower their interest rate by a very small amount while adding 

even more fees to the principal balance on the loan. Some IRRRLs also move the 

borrower from a low, fixed-rate loan to a slightly lower, but now adjustable-rate, 

loan. In other instances, borrowers are promised ‘‘cash back’’ from their escrow account or the ability to effectively ‘‘skip a payment.’’ Such serial refinancing, or 

churning, provides little or no long-term benefit to the borrower while essentially 

stripping their equity and further extending the overall recoupment period. 

VA borrowers are particularly susceptible to churning in an environment of falling 

interest rates, as these lower interest rates present more opportunities for lenders 

to offer IRRRLs. And lenders engaging in churning target IRRRLs due to their 

much lower origination costs relative to fully-underwritten refinances. Many borrowers may be unaware or may not fully comprehend the net economic impact of 

their decision to refinance (or continually refinance), leaving them vulnerable to situations in which they add substantial amounts to their overall loan balance or lose 

their fixed interest rate while achieving only small reductions in their monthly payments. 

The harm caused by loan churning is not limited to the financial condition of the 

individual borrower, however. Aggressive use of IRRRLs by some lenders threatens 

to weaken investor demand for Government National Mortgage Association (Ginnie 

Mae) securities that are partially backed by VA loans. This outcome would negatively impact access to credit for a wide range of borrowers. 

The vast majority of VA loans are bundled into mortgage-backed securities (MBS) 

that receive a guaranty of timely payment of principal and interest by Ginnie Mae. 

These Ginnie Mae MBS in turn receive a full faith and credit guaranty of the U.S. 

government. Importantly, however, Ginnie Mae MBS are backed not only by VA 

loans, but also by loans originated through the Federal Housing Administration 

(FHA), the U.S. Department of Agriculture’s Rural Development (RD), and the Public and Indian Housing (PIH) insurance programs. 

And like other mortgage refinances, IRRRLs represent a prepayment of the original VA loan along with the origination of a new loan (with new terms). Those prepayments flow through to the Ginnie Mae investors. While these investors do not 

assume credit risk on the MBS due to the U.S. government guaranty, they are exposed to prepayment risk. More specifically, investors take into account the timing 

of future cash flows from a bond when determining the price they are willing to pay 

for that bond. If the rate of actual prepayments increases materially and beyond 

what was reasonably estimated by the investor, the anticipated income stream from 

the MBS will fall short of investor expectations. This outcome lowers demand for 

Ginnie Mae MBS, thereby decreasing the price of the bonds and increasing their 

yields. 

The higher yields on Ginnie Mae MBS directly correspond to higher mortgage interest rates for not only VA borrowers, but also FHA, RD, and PIH borrowers. These 

higher interest rates broadly decrease access to credit and exacerbate affordability 

concerns in the housing market, particularly for first-time homebuyers and 

servicemembers and veterans. 

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It is worth reiterating that IRRRL churning does not appear to be a widespread 

problem among the mortgage lender community, but rather an activity that is confined to a small subset of lenders. Ginnie Mae has recently taken steps to meet with 

lenders that may be engaged in this practice, and to modify pooling requirements 

in order to limit the economic benefits of churning. While helpful, these efforts are 

not sufficient to end abusive activity. 

MBA fully supports supervisory efforts to improve the policing of the market, as 

well as appropriate regulatory and legislative efforts to remove the ability or incentive for lenders to engage in churning. MBA is mindful that any changes must be 

carefully crafted so as to preserve legitimate refinancing options for servicemembers 

and veterans. Among MBA’s core objectives is the promotion of best practices and 

standards that generate a healthy and responsible mortgage market, and the association stands ready to assist in developing and implementing solutions to the problem of churning. 

Potential Policy Options 

Many such solutions are available to address the problem. As noted, Ginnie Mae 

has already begun taking positive actions using its limited unilateral authority, first 

by issuing a six-month seasoning and payment requirement on all streamlined refinance loans prior to their eligibility for pooling, and then extending this requirement to all cash-out refinance loans, as well. Ginnie Mae and VA have also established a joint task force to analyze data and further develop coordinated policies. 

While loan seasoning requirements and joint analysis are important steps, more 

is needed to fully prevent IRRRL churning. Fortunately, many other practical options fall within the existing authority of VA to implement. The most promising of 

these options target churning while not impeding on the ability of servicemembers 

and veterans to obtain a refinancing that does result in an economic benefit to them. 

For example, a maximum recoupment period would inhibit lenders from charging 

substantial fees in exchange for minor reductions in mortgage interest rates. Further, a requirement instituting a net tangible benefit test, which is already present 

for FHA streamlined refinances, would more effectively ensure that the terms of the 

refinance produce real benefits for borrowers. Limits on the amounts that can be 

added to the principal balance would reduce equity stripping that can leave borrowers worse off as a result of the IRRRL. And finally, targeted consumer financial 

education regarding loan churning would better inform borrowers about the potential for abuse. Such efforts should focus particularly on servicemembers and veterans who are vulnerable to abuses in IRRRL lending. MBA firmly believes that 

some or all of these options-if crafted carefully-can eliminate abusive activities while 

preserving appropriate streamlined refinancing opportunities for VA borrowers. 

Once again, I appreciate the opportunity to present this testimony, and I look forward to working with the subcommittee to develop practical solutions that will curtail VA loan churning and better protect mortgage borrowers across the country. 

f 

Prepared Statement of Brock Cooper 

Good morning, Chairman Arrington, Ranking Member O’Rourke and members of 

the Committee. My name is Brock Cooper, and I am the general counsel for Veterans United Home Loans. 

I would like to thank you for allowing me the opportunity to come before you 

today to discuss this important issue regarding lending practices that impact our 

service members, our Veterans and our military families. Before working for Veterans United, I served in the Missouri Army National Guard from 2000 to 2006, 

achieving a rank of Sergeant E–5. During my service in the National Guard, I was 

called to active duty for an 18-month period from 2003 to 2005 for stateside military 

police law enforcement duty at Fort Bragg in North Carolina. Additionally, I was 

activated for Hurricane Katrina relief in 2005. 

I purchased my first home in 2008 using the VA Loan, and used the VA Interest 

Rate Reduction Refinance Loan (IRRRL) program to help lower my monthly payment and interest rate on that initial home. I have subsequently used the VA Loan 

to finance the purchase of three other homes for my family. I have a current VA 

Loan, and fully understand the pressures of the marketing practices employed by 

some industry participants around the IRRRL program. 

Two years after separating from the National Guard, I joined Veterans United. 

We are a full-service, family-owned lender, headquartered in Columbia, Missouri. 

We have nearly 2,400 employees nationwide and are licensed in all 50 states and 

Washington D.C. Our primary mission is helping Veterans, service members and 

their families achieve the American dream of homeownership. We have been the naLeonard.horne on VACREP0180 with DISTILLER

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1 Veterans Benefits Administration’s VA Home Loans web page. https://www.benefits.va.gov/ 

HOMELOANS/Lender—Statistics.asp 2 EllieMae Origination Insight Report. November 2017. https://static.elliemae.com/pdf/origination-insight-reports/Ellie—Mae—OIR—NOVEMBER2017.pdf. Page 3. 3 EllieMae Origination Insight Report. November 2017. https://static.elliemae.com/pdf/origination-insight-reports/Ellie—Mae—OIR—NOVEMBER2017.pdf. Page 5 & Mortgage Bankers Association National Delinquency Survey. 4 EllieMae Origination Insight Report. November 2017. https://static.elliemae.com/pdf/origination-insight-reports/Ellie—Mae—OIR—NOVEMBER2017.pdf. Page 4 

tion’s No. 1 VA purchase lender each of the past two fiscal years, closing more than 

37,000 purchase loans in VA fiscal year 2017 alone. We have now closed more than 

165,000 VA purchase loans since originating our first VA loan in 2003. Today, Veterans United represents 1 out of every 10 VA purchase loans originated. These stats 

are reflective of our mission to help Veterans and their families get the most from 

their hard-earned home loan benefit. 

The Success of the VA Home Loan Program 

Since our first VA Loan in 2003, we can attest the VA Loan is not like other mortgages. It differs from conventional and all other federal mortgage programs in that 

it is an earned service benefit - not a federal discretionary program - available to 

our Veterans, qualified active duty personnel and qualified surviving spouses. It is 

part of a deep bond between those who serve and the taxpayers these Veterans 

pledge to defend. 

The VA Loan program stands out as a true success story. In VA fiscal 2017, the 

program had a record 740,000 closings, hitting a record $189 billion in volume. 1 As 

of today, VA Loans represent 10 percent of the mortgage market. 2 The program has 

featured the lowest average interest rate on the market for more than three years, 

along with the lowest foreclosure rate for more than 10 years. 3 At the same time, 

VA purchase loans are closing within two days of the entire market - 47 days. 4

These statistics are powerful considering VA Loans represented about 1 percent of 

the mortgage market as recently as 2007. These facts demonstrate that by and large 

the VA Loan program is providing the desired benefit that it was designed to deliver. 

This is the story we must protect. All decisions about the VA Loan program must 

be made to ensure we improve this hard-earned service benefit, while making sure 

the program continues to be healthy and sustainable as it continues to make homeownership possible for America’s bravest. 

Improvements to the VA IRRRL Program 

Veterans United has been involved in the policy discussion surrounding the 

IRRRL program for many years. Our primary concerns remain that in some instances IRRRLs do not represent a true reasonable value to Veterans, and that serial abuse of IRRRLs could impact interest rates long-term, making it more difficult 

for Veterans to purchase homes. 

At Veterans United, we offer IRRRLs primarily as a way to better serve the Veterans and service members who have initially come to us for purchase loans, and 

whose loan we are now servicing. As of the beginning of 2018, we service about $8 

billion in VA Loans. To provide perspective, IRRRLs accounted for a little more than 

6 percent of our overall loan volume in VA fiscal 2017. 

It is critical to remember that first and foremost, the whole idea behind the 

IRRRL is to put Veterans in a better financial position today than they were yesterday. This is what guides our approach - is this new loan making the Veteran’s life 

better today and in the future? No lender should look only at immediate or longterm benefits. The lender must understand how long the Veteran intends to live in 

the home, the consequences of interest rate increases or decreases and the overall 

financial makeup of each customer. It does not matter how much a refinance purports to save a Veteran homeowner if it will take them a decade to recoup loan costs 

and fees that swell their loan balance. That does not put Veteran homeowners in 

a stronger financial position because they have less equity or may even be upside 

down on their home when they go to sell. The same could be said for convincing 

someone to refinance into an adjustable-rate mortgage without discussing the possibility for future rate increases or the potential for additional costs and decreased 

equity when later refinancing back into a fixed-rate mortgage. 

We believe there is a clear value when Veterans lower their mortgage payments 

or when they can move from adjustable-rate mortgages to fixed-rate mortgages, as 

long as they can recoup the costs and fees from that new loan within a reasonable 

time frame and do so after a reasonable time period from the initial close. 

Leonard.horne on VACREP0180 with DISTILLER

38 

This is an important way we look at refinance loans - there is not a strict, onesize-fits-all savings because there is a not a one-size-fits-all Veteran or military family. 

In addition, an IRRRL serves a valuable function outside of reducing interest 

rates - it accounts for life’s changes and challenges. Veterans and service members 

have a unique service benefit in using IRRRLs to account for these changes and 

challenges, such as the death of a spouse, marriage or a divorce. These are three 

common reasons to use the IRRRL to clean up a title, and we feel strongly they 

should be maintained. 

We all know of serial refinance companies that are aggressively contacting Veterans and their families with misleading mortgage offers. Three primary problems 

are caused by this activity: long-term financial harm to the Veteran; increased interest rates for Veterans purchasing a home; and long-term harm to the VA Loan program. 

The harm to the Veteran homeowner may be a recoupment period that is 

unjustifiably long, leaving them owing more than their home is worth or higher future costs because they’ve been convinced to refinance their fixed-rate loan into an 

ARM. 

The harm to Veterans purchasing a home is higher interest rates. When Veterans 

with a VA Loan are convinced to refinance again and again, the company making 

the original mortgage must buy it back from the secondary market, often paying 

steep penalties. While hard to quantify, this cost is inevitably passed on to Veteran 

homebuyers in the form of higher interest rates. 

These higher interest rates are also a negative to the overall program. High interest rates make the program less competitive in the marketplace, and that hurts the 

VA Loan program’s ability to invest for the future. 

Maintaining Strong Service Benefits for Veterans, Service Members and 

their Families 

We appreciate that the VA Loan Program’s leadership and Ginnie Mae’s leadership are actively engaged on this issue and committed to protecting Veterans while 

ensuring they have full access to their hard-earned benefits. We support the agencies’ joint task force, and we believe that Ginnie Mae’s recent decision to pool 

IRRRLs made within six months of the original closing differently is a step in the 

right direction. We support the quick call to action Ginnie Mae has made to address 

churning of VA loans, including Ginnie’s move this past month to incorporate cashout refinances into their refinance pooling policy. These rules would appear to address most of the problems affecting Veterans using their IRRRL benefit; the only 

portion we feel is still missing is the recoupment of refinance costs and fees within 

a set time frame. 

We support efforts to empower the VA to make program changes in a more expeditious manner. Today, Ginnie Mae, Fannie Mae, Freddie Mac and the FHA can 

make corrective program guidance decisions relatively quickly for a wide range of 

topics pertaining to the programs they administer. Alternatively, the VA has to go 

through a full, formal rulemaking process for relatively narrow, technical program 

changes that could be much more easily corrected through these other programs. 

This can prevent needed narrow fixes that would benefit our Veterans from ever 

taking place. While rulemaking should still be required for extensive program 

changes, we support a more expeditious process for lesser ones. 

We would urge that any Congressional fixes not become too ‘‘in the weeds’’ or prescribe specific requirements that could potentially cut off the VA Home Loan benefit 

for some Veterans who have earned it. Instead, Congress should empower the VA 

to quickly implement new reasonable guidelines for IRRRLs given the VA’s vast experience with the program and the Veterans it benefits, and those guidelines can 

be adapted over time. Mortgage markets do change and Congressional legislation, 

once enacted, can be set for 10 or even 20 years. A solution must work well this 

year, next year and 10 years down the road. We see instances time and again where 

rules that consider the unique circumstances of each Veteran create real value for 

our military families. 

The Next 70 Years of the VA Home Loan Program 

Members of this Committee, the IRRRL is an important aspect of a hard-earned 

service benefit created more than 70 years ago. The entire premise of the IRRRL 

is to provide a no-frills, low-cost loan to help Veterans save money, strengthen their 

overall financial health and adjust to life’s unforeseen events, while not hurting the 

ability of fellow Veterans to make their own homeownership dreams a reality. Unfortunately, loans are being made that fail to live up to the spirit and intent of this 

long-cherished service benefit. 

Leonard.horne on VACREP0180 with DISTILLER

39 

Veterans United believes reasonable seasoning and recoupment periods are essential to protect Veterans and the long-term viability of the VA Loan program and to 

ensure Veterans are clearly benefitting from a VA refinance. To date, Ginnie Mae 

has addressed the seasoning requirements, and we believe VA is best suited to address a recoupment period. We look forward to helping the VA Loan Guaranty Program, Ginnie Mae and other stakeholders in any way we can to best serve those 

who have served us. 

Finally, it’s worth noting that those entering the military take an oath of office 

very similar to the oath taken by Members of the House: all swear to ‘‘support and 

defend the Constitution of the United States against all enemies, foreign and domestic, bearing true faith and allegiance to the same.’’ 

All serve, of course, but those in the military pledge their very lives in the process. We are all here to ensure that those pledging so much receive the very best 

from us in return. 

Thank you again, Mr. Chairman and the Committee, for allowing me to come before you today. 

f 

Statements For The Record 

QUESTIONS & ANSWERS FOR THE RECORD 

Ginnie Mae Responses 

1. Please explain in detail the reason that Ginnie Mae does not publicly 

publish on its website the names of lenders that it has fined in the past, 

including those it has fined for breaking the 2017 Ginnie Mae policy that 

required VA loans to be at least six months old before being refinance. 

Ginnie Mae has the statutory authority to levy Civil Money Penalties (CMP) for 

many types of program violations. Typically, Ginnie Mae’s use of CMPs focuses on 

violations that relate to reporting and remittance of principal and interest, as those 

are clear cut program violations and are critical to Ginnie Mae operations. As noted 

in the hearing on January 10, 2018, Ginnie Mae has issued CMPs for violations of 

All Participants Memorandum (APM) 16–05, but has not made public the list of 

issuers who received CMPs. 

Ginnie Mae is not statutorily required to publicize CMPs, and historically it has 

chosen not to do so. The two principal reasons for this are: 

• Most Issuers take program violations seriously, and they are usually responsive 

to Ginnie Mae enforcement actions. 

• For publicly traded companies or companies that rely on borrowing facilities, 

the introduction of reputational risk into Ginnie Mae enforcement activities 

could result in market consequences for issuers that would be harmful to the 

overall management of the Ginnie Mae MBS program. 

2. Please state whether, in the future, Ginnie Mae would consider publicly publishing the names of lenders it has fined for breaking its policies. 

There are circumstances where it could be in Ginnie Mae’s interest to publicize 

a CMP enforcement action. Ginnie Mae reserves the right to do so if it deems such 

action would be warranted, helpful, and appropriate. Ginnie Mae is currently examining the benefits and drawbacks of publicizing CMPs in relation to the VA loan 

churn APM. 

Æ 

Leonard.horne on VACREP0180 with DISTILLER