Categories: Mortgage

Ginnie Mae warns against repeated refinancing

Although many lenders continue to advocate the apparent benefits of refinancing on a mortgage, Ginnie Mae has come out with advice to the contrary, suggesting that repeated refinances could actually be harmful to many borrowers and investors.

Ginnie Mae, which is a government-backed entity similar to Fannie Mae and Freddie Mac with a focus on guaranteeing government mortgage bonds, says it’s taking steps to clamp down on so-called “churning”, in which lenders push borrowers to refinance over and over again.

The biggest benefit of refinancing is that it enables borrowers to take advantage of lower interest rates and therefore reduce their monthly repayments. But, multiple refinances can also result in more lender fees and an overall higher bill over the lifetime of the mortgage. In addition, churning makes investors uneasy over Ginnie Mae’s outstanding bonds, leading to doubts over whether or not they’ll see a return on their investments.

Ginnie Mae said it started to take action against some lenders last year due to reports that they were pushing borrowers to refinance even when it wouldn’t benefit them. The organization says it’s targeting mortgages where borrowers pull some cash out of the existing equity they’ve amassed on their home during a refinancing. Such loans often amount to more than 90% of the property’s value, and so Ginnie Mae is soliciting feedback from investors to create a new policy protecting against such activity.

“When mortgages are refinanced at a rapid pace, the mortgage securities are paid off more quickly than expected, which means investors don’t receive the yield for as long as they wanted,” The Wall Street Journal reported. “Even a little bit of churning can reduce attractiveness of an entire pool of loans by shortening the life of the bonds.”

Churning may be highest among VA cash-out refinancings, where the loan to value is more than 90%. VA mortgage refinances allow service members to take more cash out than typical loans. In some cases, they may be able to take out up to 100% of the value of the property. In conventional mortgages, cash-out refinances are usually capped at 80% of the property value; Federal Housing Administration loans cap cash-outs at 85%.

Mike Wheatley

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at mike@realtybiznews.com.

Recent Posts

Property Management Trends That Will Shape 2022

Property management currently operates in a very aggressive and constantly changing realm. However, some key…

13 hours ago

Everyday Tools and Software Realtors Need to Use

Real estate professionals lead busy lives, so finding better and more efficient ways to do…

2 days ago

6 Questions to Ask Yourself Before Switching from Renting to Owning a Home

Buying a home has long been considered a quintessential part of the American dream. Owning…

2 days ago

Five Top Agents in Rocky Mount, North Carolina

A roundup of some of the top real estate professionals in the Rocky Mount, North…

3 days ago

What to Know About Canada’s Top 20 Real Estate Agencies

Making the decision to join a real estate agency or purchase a home is a…

3 days ago

Buyers are walking away from new homes due to rising interest rates

Interest rates have been rising so fast that many buyers who signed contracts to purchase…

3 days ago