Ginnie Mae is taking steps to curb repeated mortgage refinancings that it says are hurting both borrowers and investors, the Wall Street Journal reported. The government-backed firm, which promotes homeownership by guaranteeing government mortgage bonds, is considering barring some loans backed by the Department of Veterans Affairs from inclusion in its flagship bonds. Its proposal, to be released today, is aimed at stopping so-called “churning,” a practice in which lenders push borrowers to refinance their home loans over and over in a bid to boost fees to the lenders. Ginnie Mae has made churning a priority in recent years. It started taking action against individual lenders last year when their activity suggested they were pushing refis on borrowers, even when the borrowers wouldn’t benefit from it. Ginnie Mae’s backing of government mortgage bonds gives investors certainty they will be paid, which in turn allows lenders to make mortgages at lower rates, often to first-time home buyers and veterans. Its portfolio of outstanding bonds has ballooned in recent years and now makes up nearly a third of all agency-backed mortgage debt. That has put the firm in the position of having to more carefully police the actions of its lenders, many of which are independent firms, to preserve the flow of capital into the mortgage market. Now, Ginnie Mae is focusing on mortgages where a borrower pulls cash out of their home during a refinancing, resulting in a loan that is more than 90 percent of the value of the property. The firm is seeking input from investors and others before completing the policy.
