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VA Toughens Loan Refinancing Rules

By Staff Sgt. Michael Wetzel, USA
American Forces Press Service

WASHINGTON, Nov. 24, 1998 – New regulations are due by the end of the year to curtail money lenders preying on veterans seeking to refinance their VA home loans.

Homeowners, including many service members and veterans, are flocking to take advantage of the lowest interest rates in 30 years, said Keith Pedigo, director of the VA Loan Guarantee Service here. Some lenders, however, are using aggressive and unfair marketing practices to turn a deal for the veterans into a deal for themselves.

He said the new rules require every interest rate reduction refinancing loan to show a decrease in the principal and interest payment. Plus, he said, if payments on the current loan are more than 30 days past due, the VA must approve the refinance.

"Currently, we do not require an income verification, a credit report or an appraisal to make these kinds of loans, Pedigo said. "Under the new rules, we would require that [the loan] be submitted to the VA and we would subject that loan to a credit and income review before deciding whether or not to approve it." Issues include whether the borrower is a satisfactory credit risk and has sufficient income to make the mortgage payments.

The new, tougher rules stem from practices VA officials were seeing in the refinancing market. "We detected that there were some lenders who were allowing veterans and active duty members to skip payments on their current VA loans and to roll those delinquent payments into the new loan," Pedigo said. "The [rollover] increased the amount of the new loan, in some instances far above the balance of the old loan."

Some lenders even encouraged VA loan holders to spend the skipped mortgage payments on a car or a vacation, he said, and others slipped in excessive closing costs. In still other cases, he added, "The actual mortgage payment for these veterans was going up, even though the interest rate was going down."

Only a few of the more than 5,000 lenders who do business with the VA have been found using these marketing tactics, Pedigo pointed out. The vast majority do not, he stressed, but even then, VA loan holders should shop carefully.

"We know of literally thousands of instances every year where veterans get a better deal by doing their homework," he said. "My advice to anyone who's either buying a home or [refinancing it] would be to spend some time, do some comparative shopping and make sure you get the best deal that's available to you."

About 20 percent of the loans the VA guarantees each year go to active duty service members, Pedigo noted.

[Staff Sgt. Michael Wetzel is assigned to the Armed Forces Radio and Television Service, American Forces Information Service, Alexandria, Va.]

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