VA and the CFBP Warn Homeowners Against Refinancing Scams

Everyone knows the age old saying: “if it sounds too good to be true…”  well consider this your official warning.

In an article originally posted by the Consumer Financial Protection Bureau and the U.S. Department of Veterans Affairs, both entities have 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 legitimate 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.  These letters look official as something coming from VA and contain many promises that sound too good to be true, but actually 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.

The CFPB and the VA caution to watch out for the following tactics:

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 service members who were promised a certain refund amount and received a much lower amount at closing. We have also heard from service members 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.

Be prepared to:  Understand that certain advertised benefits, such as no out-of-pocket closing costs, skipped mortgage payments, and escrow refunds, are costs that are generally added to your loan and increase the overall principal balance. These are all red flags that may indicate that the loan is less likely to benefit you. Before you proceed with a VA mortgage refinance, be sure to speak to your trusted mortgage advisor to help guide you through all considerations the long-term and short-term benefits and consequences of refinancing your VA loan.

If you would like to stop or reduce the amount of the offers you receive, you can call 888-5-OPTOUT (888-567-8688) or visit www.optoutprescreen.com . You can also put your phone number on the federal government's National Do Not Call Registry to reduce the telemarketing calls you get at home. Visit www.donotcall.gov  or call 888-382-1222 from the phone number you want to register.