Churning a term synonymous with aggressive lending practices, is a growing concern in the mortgage industry. It involves lenders pressuring borrowers to refinance their mortgages shortly after closing, often with little or no financial benefit. This can result in borrowers incurring additional closing costs and fees, essentially getting stuck in a cycle of debt.
Types of Churning:
1. VA Loan Refinancing:
Lenders are pursuing veterans and active military personnel who have utilized VA home loan benefits with great vigor. Soon after their first loan closes, these borrowers are frequently contacted with offers of reduced interest rates. These deals, however, might have additional fees, like closing costs and increased loan amounts overall.
2. Wholesale Lender Churning:
Wholesale lenders who work with mortgage brokers to originate loans, are known to “steal” customers from brokers by offering refinancing shortly after the initial loan closes. This practice undermines the role of brokers and leaves borrowers feeling cheated.
3. Trigger Leads:
These are leads generated by credit reporting agencies and sold to lenders. When a borrower applies for a mortgage, their credit information is packaged and sold to other lenders, who then bombard the borrower with refinancing offers. This can be overwhelming and confusing for borrowers, who may end up making decisions that are not in their best interests.
Protecting Yourself from Churning:
- Be wary of unsolicited refinancing offers: If you receive a call or email from a lender offering to refinance your mortgage shortly after closing, be cautious. Do your research and compare the terms of the new loan to your existing loan before making a decision.
- Work with a reputable mortgage broker: A good mortgage broker will work in your best interests and help you find the right loan for your needs. They will also be able to advise you on whether or not refinancing makes sense for you.
- Educate yourself about churning: The more you know about churning, the better equipped you will be to protect yourself from it. There are many resources available online and from consumer protection agencies.
- Opt out of trigger leads: You can opt out of trigger leads by contacting the credit reporting agencies and asking to be removed from their marketing lists.
Churning is a serious problem that can cost borrowers thousands of dollars. By being aware of the different types of churning and taking steps to protect yourself, you can avoid falling victim to this predatory practice.
Beware of ‘Churning’ in All Its Forms
“Churning” is a four-letter word in the mortgage business.
The term refers to aggressive lending practices. The most typical scenario of churning is when competing lenders offer to refinance the mortgage shortly after a buyer closes on a property. The unsuspecting borrower is offered a lower interest rate by the poachers, but there are little to no actual savings because they must repay closing costs and possibly other fees. Even with the lower interest rate, the new loan may in some circumstances end up costing more than the previous one.
Churning seems to be on the rise lately. Some lenders are falling over themselves to steal the clients of other lenders due to the ongoing drop in the number of people applying for home loans.
The government took action just last fall to prevent lenders from pursuing veterans and service members who have utilized their housing benefits to buy homes with loans guaranteed by the Veterans Administration (VA).
One Air Force veteran received his first call from a lender regarding refinancing before he had even completed unpacking in his new Texas home, according to the San Antonio Express-News.
The original lenders, who were counting on the loans being on their books for at least long enough to recover their cost to make the loan and possibly earn a profit, have cried foul play in response to the refinancing schemes. And it caught the attention of muckraking Sen. Elizabeth Warren, D-Mass. , among others. Warren demanded in a letter dated September that Ginnie Mae, the main government loan financing organization, stop lenders from “aggressively marketing VA refinance mortgages that benefit them but harm veterans and the American taxpayers.” ”.
Ginnie Mae, which bundles government loans into securities for sale to investors in a manner similar to that of Fannie Mae and Freddie Mac with conventional loans, responded to the letter by stating that it had limited the frequency with which a lender can place a mortgage to the same borrower whose initial mortgage is in a Ginnie Mae loan bond.
Additionally, the agency announced that it would closely monitor the rates and speed at which specific lenders refinance VA borrowers. If lenders refinance borrowers too quickly, or if they charge rates that are more than 1. 5 percentage points above the market, they may face penalties.
However, Joseph Murin, who led Ginnie Mae during the initial housing crisis years (2008–2009) for both Presidents Bush and Obama, asserts that he believes the organization has not gone far enough to end the practice. Murin, who is currently chairman emeritus of NewDay USA, a company based in Maryland, believes that the current six-month refinancing moratorium ought to be extended to twelve months. Murin asserts that it is unprecedented for NewDay to be losing some loans as soon as 30 days following their closing.
He believes that too many lenders could be concentrating on creating new loans to new borrowers instead of “pilfering” refinance loans as a “back-door means to survival.”
But pressuring VA borrowers into refinancing isn’t the only kind of churning. In some cases, wholesale lenders are stealing customers from mortgage brokers.
Wholesale lenders don’t make loans directly. Instead, they create loans via a vast network of mortgage brokers who assist borrowers in selecting a loan, completing all the necessary paperwork, and sending the package to one or more wholesalers. Sometimes, brokers actually close the loan and then deliver it to the wholesaler.
The system works well: Brokers do all the legwork, and borrowers get a lender of their choice. However, wholesalers occasionally rush to refinance the broker’s clients just after the initial mortgage closes.
Garden State Home Loans in New Jersey’s Anthony Casa claims that the practice has been ongoing for years. However, a group going by the name of Brokers Rallying Against Whole-tail Lending, or BRAWL, is now exposing the bad actors. (The group coined the term “whole-tail” to refer to shady companies straddling the line between wholesale and retail. ).
According to Casa, a founding member of BRAWL, “mortgage brokers have known about whole-tailers’ shady tactics for years, but we just didn’t have a voice before.” “We’re speaking up now. The Jersey broker claims that while dishonest wholesalers are “stealing our customers,” his colleagues are “the ones handing buyers the keys.” ”.
BRAWL searches for “lenders who pretend to provide retail and wholesale services, but in reality, their wholesale divisions are only there to supply their retail outlets.” The group requests that brokers “commit to partner only with true wholesale lenders until the whole-tailers put an end to their selfish and greedy ways” in an open letter to the broker community. ”.
“Trigger leads” are the third type of churning; these are leads that the national credit repositories sell to lenders on a daily basis.
Each time a lender pulls a prospective borrower’s credit report, credit agencies bundle the request with those of other potential leads and sell them to other loan originators according to the particular customer types that meet their lending requirements.
The potential borrower is then deluged with additional loan offers, purportedly to enable them to contrast the poachers’ merchandise with the initial quote. As per the National Credit Reporting Association (NCRA), certain lenders who utilize trigger leads fabricate their sources of information regarding the borrower’s mortgage application, while others violate regulations by employing dishonest tactics to convince the customer to obtain a loan from their firms.
Uncle Sam’s official position on the practice is that it’s good for consumers because it promotes competition. But original lenders don’t like it, and sometimes, neither do the borrowers.
Trigger leads, according to Terry Clemans, executive director of NCRA, are essentially pre-screened credit offers, akin to the “pre-approved” credit card offers that show up in your mailbox. According to him, the only way for customers to opt out of the trigger lead program and use their right to stop receiving any kind of pre-approved offers is at this time.
Homes in Ten Years
What will houses look like, and live like, a decade from now?
Morris Miselowski, a self-described “futurist and transformation provocateur,” was recently asked that question by the science and technology website New Atlas (formerly Gizmag). ”.
Miselowski predicts that technology will play a significant role and permeate almost every aspect of our lives, as one might expect. However, he sees a number of other trends that will have become popular in ten years, such as multipurpose furniture, buildings that can house three generations under one roof, and homes that track our health.
These predictions aren’t exactly off-the-wall. Indeed, some aspects have already taken hold. But some of what Miselowski sees coming is rather far out.
For instance, he predicts that smart surfaces—which lessen the amount of work you have to do around the house—will receive a lot of attention. He notices things like china and silverware that cleans itself and surfaces that indicate when a thorough cleaning is necessary. He also suggests that windows will be cleaned robotically (as some floors already are).
Additionally, Miselowski projects that floor plans will keep getting smaller and that the average home won’t be able to fit a lot of furniture. Pieces will have to serve more than one purpose. He gave the example of Ori, a relatively new robotic furniture system that includes a bed, table, bookshelf, and other items.
The Ori system, designed in Massachusetts, is instantly reconfigurable and gives the impression that your space is much larger than it actually is. In any case, the word “origami,” which refers to the Japanese craft of folding paper to create beautiful objects, is where Ori gets its name.
For the rental market, Miselowski notes the coming trend of rental properties including furniture. People will be even more ephemeral than they are now, he says, ready to relocate at a moment’s notice but unable to move large objects with ease. As a result, he says, big furniture items like couches and beds usually accompany the rental property. People will therefore be “investing in transportable pieces, such as distinctive artwork and handcrafted soft furnishings that stamp our personality on the spaces we inhabit,” as a result. ”.
According to Miselowski, the number of homes designed to house three generations under one roof will increase as property and child care costs rise. These homes will have features like two or more living spaces, a separate kitchenette, and a large communal area where all the generations can congregate.
Other homes will have adaptable floor plans with easily movable walls that can change to accommodate the needs of their occupants as the day progresses.
Regarding technology, Miselowski says it will play an ever-increasing part in our lives. A decade from now, he says, “intuitive devices that do the thinking for us will be the norm. Think about this: “When you walk in the door, your house will automatically adjust the lighting, set the temperature just right, and recommend a meal based on what’s in the fridge.” ”.
Even better, in-home technology will be more seamlessly integrated. He notes that Wi-Fi is already starting to be incorporated into new construction’s walls, providing residents with flawless connectivity throughout.
Technology will have its greatest impact in the kitchen, Miselowki says. “It will be a multifunctional area that seamlessly transitions between cooking, dining, and entertaining in ten years,” he predicts.
Countertops will come into their own. In ten years, the typical kitchen counter will have many uses and not just be static. According to a futurist, “Touch the surface and it will transform from prep area to induction cooktop or technology station.” “It will perform time-saving tasks, too, such as measuring ingredients and choosing the correct cooking temperatures. The kitchen will be an entirely connected area that can track your culinary creations, check to see what your guests enjoy to eat on social media, and notify you when the milk in the refrigerator needs to be refrigerated. ”.
Finally, Miselowski notes that attitudes toward property ownership are changing. For baby boomers, owning a home was a sign of success. But their children aren’t so interested. They’ll live a more nomadic lifestyle, renting for an extended period of time and being “happy to pack up their lives and accept that job on the other side of the world.” ”.
The trends of downsizing and moving closer to the city will continue, particularly among boomers. Consequently, he predicts an increase in compact, four- to six-story, inner-city dwellings near public transportation. These homes, he says, will be in mixed-purpose builds, often above shops and cafes.
“This just goes to show how much our attitudes have changed in a generation or two, because there used to be a real stigma attached to living in the apartment above the shop,” he says.
What you need to know about mortgage churning
FAQ
What is mortgage chunking?
What is loan flipping?
What is considered a predatory mortgage loan?
How much is a downpayment on a 1.3 million house?
What is credit card churning?
Credit card churning involves opening a series of new credit card accounts in order to take advantage of the introductory rewards offered by each, and then closing the accounts or leaving them unused. Credit card churners used to be able to rack up a lot of rewards points by doing this.
What is churning a mortgage?
The process whereby a lender solicits an existing borrower to refinance their current mortgage with little to no financial benefit to the borrower with a different or the same investor. Churning involves repeatedly refinancing a loan with additional closing costs and fees on top of the original principal amount. Is loan stacking a crime?
What are the most common mortgage churning scenarios?
The most common churning scenario: Soon after a buyer closes on a home, rival lenders offer to refinance the mortgage. The poachers offer the unsuspecting borrower a lower interest rate, but they have to pay closing costs all over again, and perhaps some additional fees — so there is little or no real savings.
Is churning illegal?
Churning is illegal and unethical and is subject to severe fines and sanctions. Brokerages may charge a commission on trades or a flat percentage fee for managed accounts. Flat-fee accounts can be subjected to “reverse churning,” in which little or no trading is done in return for an annual slice of the assets.