Ginnie Mae Moves to Curb Churning

Government-backed Ginnie Mae has released a proposal to curb churning, a practice of repeated and unnecessary refinancing.

According to Realtor.com, lenders often push borrowers to participate in churning in an attempt to boost fees to the lenders. Borrowers often don’t see any benefits from the practice. Ginnie Mae sees churning most often among cash-out refinances from the Department of Veterans Affairs where the loan to value is over 90 percent, according to its proposal.

Ginnie said the proposal is being driven by the concerns of investors who buy its securities. 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. Even a little bit of churning can reduce the attractiveness of an entire pool of loans by shortening the life of the bonds.

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