[inaudible conversations] welcome to todays subcommittee on Economic Opportunity and the oversight hearing entitled home loan churning practices and how veteran homebuyers are being affected and how taxpayers can be affected. This is the second hearing was held in Congress Related to the Loan Guarantee program and the benefits provided to the american servicemembers and veterans on account of the program. As with the department of Veterans Affairs discusses in the testimony from the guarantee was over 23 million loans in excess of 2 trillion since the 1940s that represents millions of veterans come servicemembers and their families who have may not have otherwise been able to achieve the American Dream and while this program is one of the more wellrun programs at the va and i have some thoughts about why it is. The lenders are involved and there are more people involved in administering it in the private sector. Potentially unscrupulous lenders that have potential for the veteran homebuyers but for the mortgage industry and the taxpayer who guarantee programs like this that are ultimately on the hook. We have seen reports of what may be the practices that seem to be in some cases misleading veterans to refinance their homes in the idea they will have lower Interest Rates or be able to skip a mortgage payment or take the tasks out of their home that will save them money down the road and as our dads taught us if something sounds too good to be true, often times it is too good to be true. So, we have heard stories of individual veterans receiving dozens of solicitations from certain lenders in the immediately after closing on their homes leaving some of them to believe they would feel less cash each month if they just refinance their homes. Theres other products like that but the veteran can end up paying much more than they ultimately cant afford or even remove all their equity in the home such that they end up upside down on their mortgage. They dont seem to have the best interest of the better in a minute. They can have a negative impact on Financial Institutions and the investors that support them and then most disconcerting to me is appreciating the value of guaranteed loans and the integrity of the program and potentially exposing taxpayers to greater risk. I understand many experience instances where refinancing in the Interest Rate reduction refinancing loan is necessary and appropriate for their own on financials of the circumstances would be unfair and deceptive practices and number two, the products are being offered consistent with safe and sound practices to protect the integrity of the home loan program. We are protecting the consumer and the taxpayer who by the way he hahas agreed to make this investment. Thank you for helping to organize this to the minority staff for ensuring we are prepared. To enhance some of the challenges that face the program right now and specifically the veterans for whom it is set up and administered and intended to benefit. As weve often done in the subcommittee that distinguishes it from the other working congress i would love to see us perhaps by the end of the meeting suggest the Common Sense Solutions to va can either adopt administratively or that we will work on as literally an act of congress if necessary. I think that its something weve been able to do in the meetings together with the participation of the members input and the wisdom that we gave from the panel. I want to hear what the experts have to say and then hopefully we can get on the same page about how to correct this in a way that is not burdensome and onerous that protects the veterans from fraud or duplicity or decisions that they may not be making in an informed way. So looking forward to the conversation and grateful that you brought us all together on this important issue and with that i would yield back. I share your sentiments and the desired outcome to find out where the problem lies and the tools the stakeholders need to solve the problem and then move forward with a better environment altogether for the veterans and taxpayers. Lets make introductions of those that are here to testify with us. We have mr. Geoffrey london director of the Loan Guarantee service and accompanied by mr. Deputy director john bell of the loan guaranty service. The executive Vice President chief operating officer at the government nationaof thegovernme Association Better known as jimmy may. Thank you for being here. And testifying on behalf of the Mortgage Bankers association and important stakeholder no doubt in this discussion and finally, brock cooper childrens accounts deleted general account and forward. Good morning chairman, Ranking Member and other members of the subcommittee thank you for the opportunity to appear before you today to discuss the department of Veterans Affairs home Loan Guarantee program at the impact it can have on the veteran borrowers. Making sure theyre financed loans provides them the benefit and not future financial harm is a very important matter. When it ends in a foreclosure is also very important to ensure that the loans facilitate healthy mortgagebacked securities and continue the investment in the Housing Market and the assessment of the situation with the activities to assist veterans weve undertaken and in collaboration with our colleagues thus far in a sensible and tactful approach weve crafted to ensure program success. The vast majority of the refinance loans are providing veterans with benefits. For example, one living on Social Security income and va disability was able to reduce the Interest Rate and change terms for the 500 a month and to save over 400 a month they also show positive trends not only do they obtain two or four in a given fiscal year but approximately 80 yearoveryear to a number of lenders engaging in a notable refinancing also declined from approximately a dozen in fy 16 down to only a handful in fiscal year 2017. So yes, there have been instances not using this streamlined program for its intended purpose of the we believe that those instances are not indicative of the systematic problem to be a steadily had the value that reverberates to the investors and of course it is one better in too many so we are compelled to act and make an impactful change. Our programs success is built on a longstanding history of policy actions that are appropriate for the given situation. We take measured approaches to the interventions in complex situations. The regulation has been drafted anin our overarching concern in developing the rule is to ensure the veteran borrowers receive the tangible benefit. In addition to analyzing the requirements appropriate for streamlined refinancing we examined the longterm cost they could face in obtaining them and meanwhile, we also collaborated with our colleagues in the consumer financed Protection Bureau to employ to predict reactions that could be quickly serving veterans. The team has focused a great amount of time and energy working with the joint task force that has resulted in the memorandum aimed at the frequency of the refinancing loans seriously collaborated on the order that provide veterans with important consumer and financial information. And the members discuss Program Policy and data related to the origination performance of the guaranteed loans. At the draft regulation makes its way to publication for comment return to examining the impact in the recent Market Conditions on other segments of the business more particularly to refinancing program. We anticipate that in response to the Market Conditions lenders will shift their Business Models to originate the loans on the more refinanced loans as a result we will be keeping a close eye on the trend i trendse program to ensure that they are being underwritten to the established standards and the loans provided to the intended benefits for the veteran borrowers. Members, despite the concern others may have expressed about what we followed him to the speed at which we traveled im confident that the road we have engineered its ace in the one and that it will have a net positive impact for the veterans, lenders and the broad origination. Thank you for your unwavering commitment to serve the nations veteran Service Members and they look forward to entertaining any questions that you may have. Thank you, mr. London. And now will you yieldits for your introductory statement . Hi in the executive Vice President and chief operating officer of the mortgage association. Thank you for inviting me to testify on this issue. For background, a federal agency chartered by congress in 1968 responsible for providing liquidity to the market for mortgages and the Veterans Affairs federal Housing Administration and usda housing programs. We do this by applying the full faith and credit guaranteed to those that provide the delivery in the security. Qualifying loans are those guaranteed. Bigger then pulled into the mortgagebacked securities. The guarantee is globally recognized and trusted. The strong value of the grand leads to investment in the Housing Market from the asset managers, Pension Funds and Central Banks across the globe all of which makes lending to low income firsttime role in the veteran it would be difficult to oversee the consequences for the Housing Market for the usda did not successfully police the programs. Global capitalist onto the market in part because of the strength of the United States and its creditworthiness. The program is abused or take advantage of committed capital can and will find other investment vehicles. That would drive up Interest Rates and make it available for more americans. It is imperative that we all worked together those of us here on the panel. We believe we are seeing abusive practices mainly by the refinancing of borrowers multiple times without significant economic benefit. We believe and d and the data ss that the practices that result ipractice is the resultof a rele of lenders but importantly it has become endemic enough in the markets that it threatens the health of this activity and action to curb the behavior is imperative. Abusive lending practices in the market are alarming on so many levels. First as i mentioned before if the behavior persists we run the risk of losing the capital needed to fund the programs. Second, to watch behavior that is borderline predatory return to the nation is terrifying. Much of the behavior is reminiscent of the practice used by many in the industry prior to the financial crisis. And finally, the fact the behavior was targeted at the veterans should be sickening to all of us. The best way to stop the behavior is put in place stringent rules and say that it will not be tolerated. Weve already announced we are putting in place the following requirements. No one can be refinanced and delivered into the multiissue for security within six months of the first payment due date of the original loan. No one that is more than 150 basis points or 1. 5 Percentage Points a as with the divine will be eligible for delivery into the multiissuer security and number three, lenders that are demonstrably abusing the program will be put on notice. Ultimately, some will no longer enjoy the benefits of the Flagship Security and instead will be forced into what we call custom pools. This is a powerful tool we can and will use. Issuers that produced the pools of loans have performed different than the average each find their own investors. This action will help prevent some from filtering. I believe 2018 will be a critical year for this issue if we cant get a handle on the behavior a abusive lending may e create an environment where veterans are praying for aggressive lending. I would like to take a moment to also space for the veterans that you have the right to make unwanted calls or solicitations to stop. Refinancing the loan multiple times likely has the consequence that you may not be aware of and if you see the terms on a loan that appear too good to be true, they probably are. Veterans should feel free to contact me or any other official at any time they feel they are being harmed. Thank you once again for bringing attention to this issue and we are here to work with all of you. Thank you and im happy to answer any questions you have. To testify on behalf of the Mortgage Bankers association i am president of colonial savings a privately held family chartered in fort worth texas. For over 65 years weve been originating loans and the founder sold the opportunity to serve the veterans returning from world war ii. Roughly 2 of the volume is to veterans and we service over 6,000 loans for borrowers. Im also the chairman this year of the mba and i previously served as a board member of the texas mda and member of the Community BankAdvisory Council for the Consumer FinancialProtection Bureau. Id like to begin by applying the committee for their efforts to better understand problematic practices with respect to certain Service Members and veterans of the u. S. Military. The program plays an Important Role in increasing the appeal of the party of the credit for Service Members and surviving spouses by guaranteeing a portion of the loan balance they enable them to have more favorable terms such as no required down payment. Theres a full underwriting process and the Interest Rate reduction refinancing loan allows for the streamlined process that is often faster and entails lower cost. They lower the Interest Rate, mortgage and in doing so the barber incurs fees which are paid by the borrower and origination or ruled into the principal balancit to theprinciw loan. Recently a small number of lenders have undertaken an aggressive and potentially misleading Advertising Campaigns to generate increased volumes and fees. In some cases this advertises target is recently engaged in convincing them to be financed yet again to lower their Interest Rates by a modest amount while adding even more fees to the principal balance alone. Such serial refinancing strips the equity in the time to go for the cost to be recouped in lower payments. Some also use this to lower the rate but only by moving the veteran from a 30 year fixed rate to a threeyear adjustablerate mortgage. Many may not fully comprehend the Economic Impact of the decision to refinance. There are small reductions in the Monthly Payments and this is not for the program was intended to do and these practices should be put to the end. It also threatens to weaken the demand for the securities that are partially backed va loans. It increases cost and negatively impacts access to credit for a wide range of borrowers with. It isnt a widespread problem in the community that rather an activity confined to a small subset of lenders and fully supports the supervisory efforts to improve the policing of the market as well as the rules to remove the ability or incentive to engage. We applaud this for taking important steps for the study and address this issue however the problem cannot be solved by this alone. Many practical options for within the existing authority and for example, instituting a maximum recoupment period would inhibit lenders from charging substantial fees in exchange for minor reductions in Interest Rates. Similarly, requiring the tangible benefit test which is already required for the streamlined refinancing to more effectively and shorter terms of the term for borrowers. Limits on the amount that can be added to the balance would reduce the stripping and finally, targeted Consumer Financial education can better inform the borrowers about the potential for abuse. Its important to focus on options to target while not impeding the ability of servicemembers and veterans to e members and veterans to obtain a beneficial refinancing. We recognize the program is a unique program and an Entitlement Program for veterans who served the country. As such while we support quick action to limit the uses it needs to be done thoughtfully to ensure legitimate lowcost refinancing options for veterans are retained. The mba is committed to the promotion of best practices and standards to generate healthy and responsible Mortgage Market and we stand ready to assist in developing the solutions to problemtheproblems we have dis today. Thank you for the opportunity to testify and i welcome any questions. I will yield five minutes now for the opening remarks. Good morning. Chairman, Ranking Member and other members of the committee. I am the general counsel Veterans Home loans and would like to thank the members of the panel for being he