How Predatory Lenders Are Leaving Veterans Homeless, Broke and In Debt
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Last week, Andrea Chandler opened her mailbox in rural Virginia to find an official-looking envelope warning her that an immediate response was requested, with a Washington, DC return address and ominous logos to suggest it was a communication from a government agency. She knew what she'd find inside: a solicitation from a firm offering to refinance her home and lower her monthly payments.
Chandler is a US Navy veteran with almost 10 years of service, from June 1998 to January 2008, and she's been getting these solicitations since she bought her home with the assistance of a Veterans Administration (VA) loan guarantee in 2008.
She's a target of pre-screened credit offers, a practice used throughout the financial industry that violates consumer privacy and sets people up for identity theft. These offers prey upon people who may lack the financial savvy to understand the truth behind the appealing terms. In pre-screening, financial institutions take advantage of vast amounts of data on consumers and their habits to tailor offers of credit cards, home loans and other financing. While it is possible, when companies follow the law, to opt out of pre-screening and stop getting such offers, the fine print about how to do that is on the back of the notices, and no mention as to why people might want to do that is provided.
“I get on average one to two solicitations a week from firms that want me to refinance my home through them,” Chandler says. The offers say that “my credit doesn't matter, the amount of equity in my home doesn't matter, no appraisal necessary, no income verification necessary—all that matters is that I have a VA home loan and no additional liens on the property, like a second mortgage.” These solicitations surround the VA's Interest Rate Reduction Refinancing Loan (IRRRL) program, often marketed as a “VA streamline” or “VA to VA” streamline loan, and this program is big, big money for lenders, even in a toppling economy.
The VA has been offering home-buying support through the GI Bill since 1944, when returning servicemembers who fought in World War II bought homes in scores, boosting the post-war economy. Millions of home loans have been secured by the VA through its program, which offers not loan financing, but backing for veterans who need assistance buying a home. Many veterans have limited savings that make it difficult to put down a deposit on a home. The VA insures the loan, providing an assurance to lenders that in the event of default, it will step in. At the same time, it lowers home-buying costs for veterans, sometimes cutting out the down payment and lowering monthly payments by eliminating the need for private mortgage insurance.
Discussing the purchase of her home, Chandler says “the real virtue of the VA Home Loan Guaranty program is that part where it lets you avoid a down payment and mortgage insurance.” Home affordability for veterans is the primary purpose of the program, but it's been immensely popular with lenders as well, “because if I default, the lender is going to get 25 percent of the loan, guaranteed by the US government, and they get to seize the house and sell it.”
Private companies across the United States are lining up for GI Bill handouts, and they exploit veterans in the process, whether it's for-profit colleges taking advantage of veterans ( as documented by Frontline), abusive payday lenders, or mortgage lenders seeking customers for primary VA loans or refinances.
The VA has been criticized for failing to provide adequate orientations to exiting veterans preparing for integration with the civilian world, and the military as a whole provides limited financial education to personnel. Andrea Chandler says, “During my Transition Assistance Program (TAP) classes as I prepared to leave the military, a VA representative spoke to us and explained the home loan benefit again, and gave us a rough explanation of terms like 'points' and interest rates but nothing in-depth and no guidance on selecting a reputable lender.” Chandler was also warned about predatory lending at car dealerships ( a documented issue for veterans and service members) in boot camp, but representatives failed to mention predatory mortgage lending and other exploitative financial practices.