CFPB and VA warn borrowers against refinancing scams

Inside Subprime: December 28, 2017

By Caroline Thompson

Last month, the Consumer Financial Protection Bureau and the U.S. Department of Veterans Affairs released a joint warning order to service members and veterans with VA home loans. The “WARNO,” as the CFPB press release called it, cautioned VA mortgage holders against falling for legit-looking refinancing offers that sound too good to be true.

According to the CFPB, unscrupulous lenders have been targeting VA loan holders with “aggressive and potentially misleading advertising and sales tactics,” designed to convince homeowners that refinancing is actually in their benefit. The truth is, taking these offers will add thousands to your loan balance, and won’t benefit you much at all in the long run.

If you’ve received a refinancing offer that promises super low interest rates, thousands of dollars in cash back, skipped mortgage payments, “no” out-of-pocket costs and no waiting periods, do your research before responding to it. You very well may be getting conned.

The CFPB says you should watch out for the following things:

Offers to skip one or two mortgage payments – Lenders sometimes advertise this as a benefit of a VA mortgage refinance; in fact, VA prohibits a lender from advertising the skipping of payments as a means of obtaining cash in an Interest Rate Reduction Refinance Loan (IRRRL) . Certain lenders nevertheless use this as a selling point when they are unable to offer cash-out or a significantly lower interest rate.

Offers to receive an escrow refund – Lenders may promise that you will receive a certain amount of cash as a refund from your escrow account; however, the amount you may receive is dependent on how much is left in your account at the time the loan closes, which may be much less than you were promised. We have heard from servicemembers who were promised a certain refund amount and received a much lower amount at closing. We have also heard from servicemembers who have experienced problems with their new escrow accounts after closing and have had to make higher monthly payments to make up for the shortfall.

Low-interest rates without specific terms – Lenders may advertise a low-interest rate to get you to respond to an advertisement. You might assume these rates are for a 30-year fixed-rate mortgage, but in many cases, the rates are for a 15-year fixed-rate mortgage or an adjustable-rate mortgage, or you may have to pay discount points to receive the advertised rate.

Aggressive sales tactics – Certain lenders may try to push you into a VA mortgage refinance. For example, you may be called by a lender multiple times or receive VA mortgage refinance offers in the mail that look like a check or bill to get you to open it. You may be pressured to refinance your VA loan only a month or two after you closed on your current VA loan.

If you’re considering refinancing your VA mortgage, go straight to the source. Call the VA at (877) 827-3702 Monday-Friday between 8 a.m. and 6 p.m. to speak to a VA loan specialist.

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