On August 29, the CFPB issued a consent order against a non-bank direct mortgage lender for misrepresenting the cost of its cash-out refinance loans, which are guaranteed under the VA home loan program, to active-duty servicemembers and veterans.
The CFPB’s order alleges that the lender provided borrowers with misleading information about the costs associated with its cash-out refinance loans. The lender listed only the principal and interest payments for the “new loan” amount on the disclosures given to consumers. It then compared this “new loan” payment to the “previous loan” payment, which included principal, interest, taxes, and insurance. This presentation made the cash-out refinance loans appear cheaper than the consumers’ original mortgages. However, in many cases, the refinanced loans were actually more expensive. The lender completed at least 3,000 cash-out refinance loans in North Carolina and Maine through 2020 and in Minnesota through 2018, most of which featured these misleading comparisons.
The lender was charged for violating the Consumer Financial Protection Act’s prohibition against deceptive acts and practices. The lender is ordered to stop making misrepresentations regarding the cost of its mortgage loan products and pay a $2.25 million civil money penalty.
As part of its press release the Bureau noted that it had previously took action against the lender in 2015; it did not, however, characterize the lender as a “repeat offender.”
Putting It Into Practice: In its press release, the CFPB noted that it, the VA, and Ginnie Mae (which guarantees mortgage loans under VA home loan programs and other government mortgage programs) have long been concerned about repeatedly refinancing the same borrower to collect fees, a practice they refer to as loan “churning.” As interest rates begin to drop, we should expect more refinancings for consumers who originated their loans over the past couple of years. Lenders should take note and ensure their compliance protocols are up to date.
