VA issues warning to veterans about refinancing scams

The Veterans Administration (VA) has issued its first WARNO, “Warning Order,” to  servicemembers and veterans with VA home loans. Anyone with a VA home loan has probably come into contact with unsolicited offers to refinance their mortgage in a way that appears official and may sound too good to be true.

Many of these solicitations promise:

  • Extremely low interest rates
  • Thousands of dollars in cash back
  • Skipped mortgage payments
  • No out-of-pocket costs
  • No waiting period

Don’t be fooled. Before responding to any unsolicited offers, here is what you need to know.

Some lenders marketing VA mortgage refinances may use aggressive and potentially misleading advertising and sales tactics. Lenders may advertise a rate just to get consumers to respond, or they may receive a VA mortgage refinance offer that provides limited benefit to while adding thousands of dollars to the loan balance.

How will you know if the offer is too good to be true?

Here are some offers and tactics to watch out for:

  • Offers to skip one or two mortgage payments. Lenders sometimes advertise this as a benefit of a VA mortgage refinance. In fact, the 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 to deliver 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 what has been promised. Some servicemembers who were promised a certain refund amount and received a much lower amount at closing.

There are also cases where servicemembers 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. Consumers might be led to believe 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 a VA mortgage refinance. For example, a consumer may be called by a lender multiple times, or receive VA mortgage refinance offers in the mail that look like a check or bill. Veterans may be pressured to refinance their VA loan only a month or two after closing on their 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 a loan and increase the overall principal balance.

These are all red flags that may indicate that the loan is less likely to be a benefit.

Before proceeding with a VA mortgage refinance, be sure to consider the long-term and short-term benefits, as well as the consequences of refinancing a loan.

Any veteran considering mortgage or refinancing through a VA loan, VA loan specialists are available from 8 a.m. to 6 p.m. ET, Monday through Friday, to assist.

For more information about a current VA loan, contact the VA at 877-827-3702.

Any veteran having a problem with a VA mortgage refinance or other mortgage issues can submit a complaint to the CFPB online or by calling 855-411-CFPB (2372).

If you currently have a VA loan and are having issues repaying your mortgage, you should call a VA loan technician at 877-827-3702 to explore potential options that can assist you.