out the horrible people and replacing it with better people. that was something that voters believed him or not or believed that he could fulfill that or not. they were prepared to take a chance on it. >> sunday night at 8:00 eastern on c-span3 q and a. up next a house veterans powell home loan refinancing and militaries and veterans known as churning. they are working on new rules for the home loan guarantee programs to stop lender to press veterans to refinance their home loans. l director v.a. guarantee service and the vice president of the government national mortgage association. it is about an hour and 20 minutes.

subcommittee will come to order. good morning everyone and well konl to the subcommittee on equal opportunity. and home loan churning practices and how veteran home buyers are affected and additionally how taxpayers can be affected. this is the second oversight hearing we held this congress related to v.a. loan guarantee program and the benefits provided to our american service members and veterans on account of this program. as mr. london with the department of federal affairs discussing in his testimony v.a. guarantees over 23 million loans in excess to trillion dollars since the 1940s representing millions of veterans, service members and their families who

may not or otherwise achieve the american dream. this program is one of the more well run program at the v.a. and i have thoughts about why it is, mainly because they guarantee it but the lender are in involved and they under ride it and more people involved in administering it in the private sector. they recently had concerns about certain activities being conducted by lender. potentially unscrupulous lender which have the potential for harmful outcomes for the veteran home buyers, the mortgage industry and the taxpayer who in program like this are on the hook. we have seen reports on what may be deceptive practices that seem to be in some cases misleading veterans to refinance the home with the idea they will have lower interest rates or be able toll skip a mortgage payment or

take cash out of their homes that will save them money down the road. and as our dad's taught us, if sounds too good to be true oftentimes it is. we heard stories of receiving dozens of solicitations in the mediate week after closing on the home leaving some to believe that they will pay less cash each month if they just refinanced their homes with these lender. due to the reality of hidden fees and adjustable interest rates and other products like that, the veteran can end up paying more than they can afford or even remove all of their equity in the home such that they upside down on their mortgage. these practices are troubling and don't seem to have the best interest of the veteran in mind. they can have a negative impact on financial institutions and

the investors that support them and most disconcerning to me is that they are depreciating the value of the v.a. guaranteed loans and integrity of the program and exposing the taxpayers to greater risk. i understand that many households do experience instances where the refinancing will through the interest rate reduction and refinancing loan or the e.a.r.l. is necessary for their own necessary circumstances, but we have to make sure that there are a appropriate standards in place to prevent unfair and deceptive practices number one and number two that the products are offered consistent with the safe and sound practices to protect the integrity of the home loan prom gram. i look forward to discussing the solutions with our witnesses today to ensure that we are appropriately protecting the veteran consumer and the integrity of the program, and the a taxpayer who by the way

has agreed to make the investment and be a guarantor for the program to serve the veterans in a better way. i thank the witnesses for being here this morning and look forward to the testimony, and now i want to yield time to my friend, the ranking friend beto o'rourke. >> thank you, mr. chairman, for organizing the meeting and the minority staff for preparing for it and looking forward to those who are here to testify to answer our questions. as always, you have done an excellent job of describing the benefit of the program that we seek to enhance, and some of the challenges that face that program right now, and specifically, the veterans for whom it is set up and administered and intended to n benefit. as we have often done in the subcommittee and distinguishes it from so much work in congress, i would love to see us perhaps by the end of the meeting suggest some common sense solutions that the v.a. can either adopted a mip administratively, or we will

work on as literally an act of congress if necessary. that is something that we have been able to do and? many of the meetings together with the participation of the members and input from the bsos and the veterans and the wisdom we are gaining from the panel here. so i have come in with some ideas, and i want to listen to yours and hear what the experts have to say and in perhaps some way at the end of this get on the same page of how to correct this in a way that is not burdensome or onerous and protects the homeowners from fraud or duplicity and the decisions they may not be making in a informed way. i am looking forward to the conversation, and grateful that you brought us together on this important issue, and with that, i will yield back. >> thank you, ranking member, o'rourke, and i will share your sentiments and the desired u outcome to find out where the problem lies and what tools the

folks here in the stakeholders need to solve the problem and then move forward with just a better environmental together for the yvette rans and the taxpayers. so with that, let's make introductions of those who are here to testify with us. we have mr. jeffrey london, the drek r or the of the v.a. loan guaranteed service and accompanied by mr. john bell, the deputy director of the v.a. guaranteed loan service and mr. michael bright, the executive chief executive officer of the loan association, bet e known as jenny mae. and jeff motley of colonial banking who is an important stakeholder in doubt in this discussion, and finally mr. rock cooper the general counsel for veterans united home loans. thanks for everybody being here, and we certain ly look for

hearing from you. and we start with mr. london and you have five minutes for the opening statement. >> good morning, chairman arrington, and ranking member o'rourke and members of the subexit tee. thank you for the opportunity to ap peer before you today to discuss the department of veterans affairs home guaranteed program in the issue of refinancing and the impact it can have on the veteran borrowers. making sure that refinanced loans provide the veterans with the benefit and not future financial harm is a very important matter. no one has helped when a refinanced home ends in the foreclosure. it is important that va loans are facilitating security and mortgage backed securities and contribute to the housing market. today, i am here to share with you our activities that we have done to assist the veterans and undertaken with the collaboration of our colleagues so far and the sensible and ima pactful approach to ensure the

program success. first a sense of the scope and the nature of the situation in the program. the vast majority of refinance loans are providing the veterans with benefits. for example, one disabled veteran living on social security income and va disabl was able to reduce the interest rate and change terms to save over $500 a month. another veteran who was a police officer with two children was able to reduce the interest rate and save over $400 a month. data from the last two fiscal years also show positive trends. not only did the number of veterans who obtained two or more streamlined refinances in the given fiscal year decline significantly year over year, the number of habitual refinancing also declined from approximately a dozen in fy-16 down to only a handful of fiscal year 2017. so, yes, there have been instances of lenders not using a streamlined refinance program for its intended purpose.

although we believe those instances are not indicative of a systematic problem, va steadily high loan volume reverberates to jenny mae's investors. one veteran misled or taken advantage of is one veteran too many so we are compelled to act and make an impactful change. our program's success is built on a longstanding history of employing policy actions that are appropriate for the given situation. we take measured approaches to policy interventions and complex situations. a regulation has been drafted with due care. our overarching concern in developing the rule was to ensure that our veteran borrowers receive a net tangible benefit. in addition to analyzing requirements for streamline and appropriate loans, we examined the long -term cost borrowers could face in obtaining them.

we collaborated with our colleagues at jenny may to employ non-regulatory actions that could quickly serve veterans. taxpayers in general and mortgage investors alike. the va team has focused a great amount of time and energy in working with jenny may and our joint task force which has resulted in two all-purpose memorandums aimed at the frequency of refinanced loans. we collaborated with the cfpb on a warning order which provided veterans with important consumer financial information to consider when deciding whether to refinance an existing mortgage. we have held a number of meetings with the bankers association to discuss program policy and data as they relate to the underwriting, origination and performance of v.a. loans. as it mixes way to publication for comment. we have turned our eye to examining the impacts that recent market conditions may have on other segments of our business and more particularly the refinance program. we anticipate that in response

to market conditions, lenders will shift their business models to originate and more purchase loans or more regular cashout refinance loans. as a result, we will be keeping a close eye on trends in these programs to ensure they are being stringently underwritten to our established standards and the loans provide the intended benefit to our veteran borrowers. members, despite the concern that others may have expressed about the heading we had followed and the speed at which we had traveled and i am confident that the road we have engineered is a sensible one and that it will have a net positive impact on the veterans and the lenders and for the broader origination and secondary markets. thank you again for the opportunity to speak to you today and as always, i thank you for your unwavering commitment to serving our nation's veterans and service members. i look forward to entertain any questions that you may have. >> thank you, mr. london.

now from jenny may, mr. michael bright. we yield five minutes for your introductory statement. >> chairman harrington, and ranking member o'rourke and members of the subcommittee, good morning and thank you for inviting me here today. my name is michael bright and i'm the executive vice president and chief operating officer of the government mortgage association or ginnie mae and i thank you for allowing me to testify on this issue. ginnie mae is chartered by congress in 1968 responsible for providing liquidity to the market for mortgages in the veteran affairs and federal housing administration and the usda rural housing programs. we do this by applying a a full faith and credit government guarantee for loans that qualify for delivery within our security. qualifying loans are those guaranteed by the usda, va and fha under the respective program guides. they're pulled into the mortgage-backed securities or mbs. the ginnie mae guarantee and the ginnie mae brand is globally

recognized and trusted. the strong value of our brand leads to investment in the u.s. housing market from large asset managers, pension funds and central banks across the globe all of which makes lending to low income, first-time, rural and veteran borrowers possible. it would be very difficult for me to overstate the consequences for the u.s. housing market if ginnie mae and our partnering federal agency, the usda, va and fha did not successfully police our programs. global capital is drawn to the market in part because of the strength of the united states and its credit worthiness, but if our program is abused or taken advantage of, this capital can and will find other investment vehicles. that would drive up interest rates and make mortgage credit less available for millions of americans. as such, it is imperative that we all work together, those of us here on this panel as well as congress to solve the issue we are here to discuss today. we believe we are seeing abusive practicis by some lenders in the va program, namely the rapid financing of borrowers multiple

times without significant economic benefit. we believe and our data shows that the practice is a result of a small percentage of lenders, but importantly, it has become endemic enough in the market that it threatens the health of our security and so action to curb this behavior is imperative. abusive lending practices in the va market are alarming on so many levels. first, as i mentioned before, if this behavior persists, we run the risk of losing the capital needed to fund critically important home ownership programs. second, to watch behavior that is borderline predatory in nature, return to the country is terrifying. much of this behavior is too reminiscent of the lending practicing prior to the 2008 financial crisis and finally, the fact that the behavior is targeting veterans, it will not be tolerated. for gma's part we have announced we are putting in place the following new requirements. one, no loan can be refinanced

and delivered into a security within six months of the first payment due date of the original loan. two, no loan that is more than 150 basis points or 1.5% points that we define as par will be in a security. three, lenders who are clearly and demonstrably a abusing the progr program will be put on notice. some pools will no longer enjoy the benefits of delivery into ownership security and instead will be forced into what we call custom pools. this is a powerful tool that ginnie mae can and will use. let me repeat, issuers who produce pools of loans that perform materially different than our average will need to find their own investors. this action will help prevent the bad actions of some issuers from filtering into poor

security pricing for those who use our program in a responsible manner. i believe 2018 will be a critical year for this issue. if we cannot get a handle on this behavior, abuse of lending will continue to affect the market and our program. that can drive away important sources of capital and may create an environment where veterans are viewed as suitable prey for aggressive lending. i would like to take a moment and also say to veterans that you have the right to make unwanted calls and solicitations stop. refinancing your loan multiple times likely has consequences that you may not be aware of. if you see the terms on the loan that appear too good to be true, they probably are. veterans should feel free to contact me or any other official at ginnie mae at any time if they feel they are being harmed. in conclusion, let me thank you all once again for bringing attention to this issue. at ginnie mae we are here to work with all of you and do all that is needed to root out abusive behavior from the important loan program. thank you, and i am happy to answer any questions that you have. >> thank you, mr. bright. mr. motley, you now have five minutes.

>> thank you. chairman harington, ranking member o rourke and members of the subcommittee. i appreciate the opportunity to testify this morning on behalf of the mortgage bankers association. my name is dave motley and i am president of colonial savings, a privately held and federally chartered thrift head quartered in ft. worth, texas. for over 65 years we've been originating loans for veterans. in fact, our founder, a veteran himself saw the opportunity to serve veterans returning from world war i. today, much of 10% of the origination volume is to veterans and we service 6,000 loans to va borrowers. i am also chairman this year of the mba. i'm a certified mortgage banker and i previously served as a board member of the texas mba and a member of the community bank advisory council for the consumer financial protection bureau. i'd like to begin by applauding the subcommittee for its efforts to better understand problematic practices with respect to

several mortgage refinances and veterans of the u.s. military. the va's mortgage loan program plays an important role in increasing the availability for mortgage credit for service members and veterans and surviving spouses. by guaranteeing a portion, it offers loans with more favorable terms such as no required down payment. while those borrows seeking to refinance may apply and be evaluated by the lenders' full underwriting process, the va interest rate reduction refinance line, earls, allows for a streamlined process that is often faster and entails lower costs. refinancing allows the borrower to lower the interest rate on the mortgage and in doing so, the borrower incurs fees from the lender which are either paid by the borrower in origination or rolled into the principal balance of the new loan. recently, a small number of lenders have undertaken aggressive and potentially misleading advertising campaigns

to generate increased volumes and fees. in some cases this advertising targets va borrowers who recently engaged, convincing them to refinance yet again to lower their interest rate by a modest amount while adding more fees to the principal balance on the loan. such serial refinancing or churning strips borrowers' equity and further, tends the time period it takes for the cost to be recouped through lower pages. some lenders use it to lore the rate, and only by moving the veteran from a 30-year fixed rate to a three-year adjustable rate mortgage. many borrowers may not fully comprehend the economic impact of the decision to refinance, leaving them vulnerable to situations in which they add substantial amounts to the overall balance and achieving small reductions in the monthly payments. this is not what the program is intended to do and these practices should be put to an end. aggressive use of earls by some lenders threat tones weaken investor demand for ginnie mae securities that are partially

backed by v.a. loans. this outcome increases costs and negatively impacts access to credit for a wide range of borrowers. it's worth noting that earl churning is not a wide-spread problem among the mortgage lending community and rather an activity confined to a small subset of lends are. -- lend hers. mba improves the policing of the market as well as new rules to remove the ability or incentive for any lenders to engage in churning. we applaud ginnie mae for taking important steps to both study and address this issue. however, the problem of loan churning cannot be solved by ginnie mae alone. fortunately, many practical options fall within the existing authority of va to implement. for example, instituting a maximum recoupment period would inhibit lenders from charging substantial fees in exchange for minor reductions in mortgage interest rates. similarly, requiring a net tangible benefit test which is already required for fha streamlined finances can more

effectively ensure that the terms of the refinance produce real benefits for borrowers. limits on the amounts that can be added to the principal balance would reduce equity stripping and targeted consumer financial education about churning can better inform borrowers about the potential for abuse. it's important to focus on options that target churning while not impeding the ability of service members and veterans to obtain a beneficial refinancing. we recognize that the va program is a unique program and an entitlement program for veterans who have served our country. as such, while we support quick action to limit abuses, it needs to be done thoughtfully to ensure that legitimate low-cost refinancing options for veterans are retained. mba is committed to the best practices and standards that jen eight a healthy and responsible mortgage market and we stand ready to implementing solutions to the problems we have discussed today. thank you again for the opportunity to testify, and i welcome your questions.

>> thank you, mr. motley. i yield five minutes now to mr. cooper to his opening remarks. >> good morning. chairman arrington, ranking member o rourke and other members of the committee. my name is brock cooper and i'm general counsel of veterans united home loans and i would like to thank the rest of the members of the panel here for being here today to address this issue. thank you for allowing me the opportunity to come here before you today to discuss lending practices that impact our nation's service members and veterans. i've worked for veterans united for ten years and have headed the legal department for that entire time. i'm a veteran myself and have used the v.a. loan several times including an earl. i have a va loan and i've seen the refinance practices employed by some in the industry. veterans united is a full-service lender and we make

loans in all 50 states and the district of columbia. our primary mission is helping veterans, service members and their families achieve the american dream of home ownership. we've been the nation's number one va purchase lender in the past two years closing more than 37,000 purchase loans in 2017. veterans united now represents approximately one out of every seven va purchase loans made in the country. if i can impress one thing upon you today is that the va loan is not like other mortgages. it differs from fha loans and all other programs because it's an earned service benefit to our veterans and active duty personnel and surviving spouses. it's part of a deep bond between those who serve and the nation these veterans pledge to defend. as we work to find solutions to the issues discussed here today, i implore the committee to examine whether or not particular solutions may result

in fewer earned benefits for veterans. the va loan program stands out as a true success story. before the mortgage crisis the va loan was a little-used puck, -- produck, -- product, but due to a unique underwriting, v.a. loans were the only shining light through the mortgage crisis performing better than any o today va loans represent 10% of ther program. the mortgage market. the program features the lowest interest rates for more than three years among with the lowest foreclosure rates for about ten years. in particular, the earl program has helped hundreds of thousands of veterans save money in the monthly mortgage payments. unfortunately, as members of the panel have stated before, some earls fail to live up to the spirit and intent of this program. the idea behind the earl is to put veterans in a better financial position today than they were yesterday. we are here today to discuss improvements to this program

that will ensure that spirit is carried out in every erl. from first-hand experience i can tell you that as soon as a loan is made, serial companies are aggressively contacting veterans and their families with misleading mortgage offers. many of the companies don't care if it will take the veteran a decade or more to recoup loan costs or fees that swell their loan balances. we have seen many, many veterans harmed by this activity and in many situations the veteran is left so far under water they may have difficulty selling their home in the future. still others are left with adjustable-rate loans that they don't understand and could result in higher payments down the road and others have costs that could never be recouped. we commend the va and ginnie mae for their active engagement on this issue and we salute their commitment to protecting veterans. we are here to talk about next steps. going forward, the va is in the best position to solve this issue without compromising va benefits. they are moving forward to

solutions due to administrative requirements that are part of the va program. unlike va, other agencies such as ginnie mae, freddie mac and fannie mae and fha can make changes quickly h. we support legislation that would empower to make changes in a similarly expeditious manner, with seasoning and recoupment periods for earls. >> additionally, policymakers should ensure that noncost-saving reasons should consider through the process of our deserving veterans. thank you again, mr. chairman and ranking member and the committee for allowing you to come before you today and i look forward to questions. >> thank you, mr. cooper. i now recognize and yield myself five minutes. i may have to yield early and i would rather yield to my colleague, but in the event that i have to the leave, i wanted to go ahead and put my thoughts out

there and ask you guys some questions. i spent four years as a regulator here in washington during the bush administration, george h.w. at the fd canic, an philosophy -- philosophical view of regulation is that the best way to regulate in a private market is to have full tra transparency and robust competition so that people know what they're getting into, and they have choices. because presumably if people are buying things and if they are choosing to enter into these transactions, there must be a need. there's no market if there's no need, and i think that mr. motley would understand that being in the industry, but this isn't a private market. this is a government market. explain that to me more, mr. bright.

explain the difference between the sort of light touch, limited intervention with this sort of transparent, robust competition that free marketeers like me believe in and rely on as the best way. now we have a government and what's different about it? what is skewed in that dynamic? >> yes. thank you for the question. it is true that in the mortgage finance space in particular with usda lending the term market we use a little bit loosely because you have originators originating a loan and purchasing government insurance on that loan, in this case, in terms of the va and they're purchasing another form of government insurance to wrap mortgage-backed securities. so you have actually two taxpayer layers of involvement to ensure there's no credit risk of the end product. >> so the full faith and credit of the united states government is now brought to bear this? >> absolutely. >> we created this market with the full faith and credit of the taxpayer backing up not just

once with the guarantee -- >> yes. >> -- but also with the guarantee program, but with ginnie mae. >> a policy decision was made that we as a country that we make sure, in this case, veteran, and low-income americas have access to terms that they otherwise would not have and in o order for that to be useful, we have to police our program and we've created, as you say, a double-layer government market. >> in the absence of robust market forces, we have to play a greater role to protect those stakeholders, but -- but namely the veteran and the taxpayer as the backstop here. what is the -- so i'm curious, is this an issue of safety and soundness for the program, for the taxpayer ultimately or is this an issue of consumer protection or what we might refer to as an unfair and deceptive practice?

>> yeah. >> so i -- let me ask mr. cooper, what's -- are they disclosing these folks that we're talking about as churners? are they disclosing their churning? are they disclosing everything that they're going to do or are they being deceptive and unfair in your opinion? [ inaudible ] >> if these things are deceptive initially, but i can tell you that we see disclosures that come through that don't put the veteran in a better financial position. so they may be disclosing it, but we feel like they're being pressured to make these loans in certain situations. >> here's my problem with that, and i mean, i just feel like our veterans are some of the toughest, mentally strong,

mentally competent, mature, wise. these folks have borne tremendous responsibility and now all of the sudden, if somebody is disclosing things to them, i have a hard time believing that they're being necessarily taken advantage of. they may, but i struggle with that. now, if they're being deceived and folks are putting out, holding out to do one thing and then they're doing another, that's a problem, and if you can't stop that at the va and ginnie mae, let's figure out how we can have an act of congress to do that, but to suggest that they can't fend for themselves when reading about what they're getting into i struggle with that. my last question and i'm going to yield with my colleagues and that's on the consumer protection side and if there's not the disclosure and if there's not transparency, we need to know that, and if you don't have the tools to deal with that. the other issue is the safety and soundness. so whether they're disclosed fully and they're completely

transparent or not and know what they're getting into or not, if it puts greater risk to ginnie mae and to the va and the taxpayer, that is a real problem for me regardless and would the panel opine on that and i would ask mr. london and mr. bright to have comments and then i'll yield to the ranking member for his remarks and thanks for being a little generous here on my time. >> yes, mr. chairman, thank you for the opportunity to respond to your question. >> and by the way, if you want to also comment on what i said about the veteran reading and understanding versus deceptive, because there is a real difference there and feel free to opine on what i said. >> oh, sure. you spent four years at the fdic and four or five times with va in oversight and compliance and i share your sentiments about making sure that the safety and soundness in the program is built in my dna, and if you look at the outcomes that the program

has, the numbers do not lie. the va program is a sound program. mr. cooper mentioned that for the last ten years we've had the lowest foreclosure rate and lowest series of dling welinque rate. that's an indicator of the safety and soundness of our program and as i mentioned in my opening statement, the actions that we have taken over the years to ensure that we continue to have those type of performances is exactly what we need to do for the issues that are brought out today. i do believe that the va has a statutory authority to address the issues and i agree with the education and the veterans can make sound decisions of their own and it's our job that we give them the tools to make those decisions. >> i agree. i would add, it is entirely true that the va loan program has low delinquencies and that is a testament to v.a. and i think that's a testament to the deal that officers and enlisted folks

make with themselves when they apply for the program. there say strong sense that this is an earned benefit, but we need to continue to earn this benefit by performing on the loan and that's a great pact. the problem is we have some lenders who don't seem to be living up to that pact, as well. absolutely, this type of behavior puts taxpayers at risk in a couple of very concrete ways. the first that at ginnie mae we wrap the mortgage-backed security. our recourse meaning if a lender has to remit principle and interest on time, we have to make that payment for them. whether the borrower making it or not, we have to make it for them and that is what the guarantee. the asset that we have recourse to and you as a former chief of the staff of the fdic, you go in to find out the asset in the case that the institution fails to live up to the obligation, and our asset is the msr, the mortgage servicing rate. when we have prepayment speeds that are inexplicable by any economic measure whatsoever, what that does is he drives down the value of the mortgage service rate or msr which means the collateral that the taxpayer

has has access and recourse to the event that the counterparty fails to live up to the obligations that asset is declining rapidly in value, because we have issues with prepayment speeds in which their entire book turns over in six months. so it is a technical issue, and i don't want to get too weedy on it, but the asset that ginnie mae has recourse to falls in value because of the behavior. and the final small point is that if you have lenders who are solely in the re-fi business, and that goes away, those lend willers face insolvency. when they are insolvent, that is when the ginnie mae wraps in, and we have are to take the book to explain that the asset has fallen in value. so this is a full eco system generation that is going on, and the veterans have an admirable job of paying the loans on time.

>> i yield five minutes and as much time as you may need to ask any questions and make any comments to ranking member o'rourke. >> i thank the chairman and take his point about ensuring that there's transparency and adequate information for the consumer, in this case and the veteran to make an informed decision as someone who purchased a home with my wife and i'm not a veteran, nor is she and we refinanced our home, i do have to say you are battling a mountain of transparency and information and i would be lying to you if i told you i read every page i signed. i didn't. we trusted those who facilitated the sale of the mortgage. so when you pit the veteran against those who would practice churning through serial refinancing and abusive lending and they've got their marketing teams. they've got the folks in the call rooms who are calling these

veterans within days and hours after they have already refinanced a loan, i think we need to do more than just ensuring that they have information, and i wonder if there is a way to prioritize this information and if you don't mind i'll disclose that you and i were talking about this yesterday and talking about whether there's just one page with four bullets on it in 16-point type that says this is your principle right now. this will be your principle with the refinancing costs that you will incur if you move forward in this process. this is the consequence. no more than those four, and not in nine-point type and not in addition of anything else especially if this this is your second, third or fourth refinancing. this is how the principal has grown over time and then if you want to make the bluntly informed position to proceed, then so be it, you have assumed that with the risk of the

taxpayer backing it up. i wonder if that is going to ma make it a little bit more fairer engagement between the veteran borrower, and the originator of the mortgage. mr. motley, you said the net economic impact which is what i'm trying to get at may not be understood by the borrower, and you said perhaps some more targeted consumer information. are we getting at the same thing in terms of this prioritizing like, look, this is what you're about to take on. i want to make sure you're good with it because it may not be clear from what the person trying to sell you on this originally told you. >> thank you, congressman. i think we are moving in the right, in the same direction there, and i believe that some sort of a net tangible benefit test that is shown to the veteran is the way to go because it's going show him what the actual cost associated with that new refinance is going to be against the timeframe it would take to recoup those costs through lower payments.

>> and so with that time horizon is outside of his time horizon. then that deal make nos sense for the veteran, but it is a decision that he or she can make, and so there is a definite need to establish some kind of the net tangible benefit test similar to what the fha has to demonstrate to the borrower that this refinancing makes some sense. if it is in place, you abide by it or you don't, and if you don't, then you as the lender are subject to sanctions or maybe getting out of the program, but at least you have provided the disclosure to the borrower and he has made that decision based on his circumstances and terms and expected term of living in that house. >> mr. motley is talking about consequences to bad actors in the system. mr. london, can you talk a little bit about that and how we hold people accountable for churning and taking advantage of veterans who may not be told in

the clearest or necessary terms just what they are taking on? >> sure. before i answer that question specifically i do want to touch base on what you are talking about the disclosure and share some good news with you. >> great. >> today in our program we have a requirement that lenders do exactly what you describe. we call that the earl worksheet where on the company's letterhead they have to disclose the terms of the loan to include the recoupment of that new transaction. so we do that today. unfortunately, what happens is the veteran gets that at the closing table like you described with a mountain of paperwork that they don't read. >> right. >> so the decision that i have already made is to ensure that that disclosure is provided up front to the veteran. va will also get a copy at the same time the veteran gets a copy so that we can be the partner with the veteran if he or she has questions about those terms that we can advise him or her and they can make their own informed decision. that's something they can do

today administratively. without any regulation or statutory changes. >> when does that start? >> we have to make some system changes and put out guidance to lenders on what information we need to make that happen. my goal is to have that happen this year, this calendar year. >> it seems like, again, you know this far better than i do, but it seems like a relatively easy fix to make, and first of all thank you for doing it and i love that it would not require an act of congress to get that done. so, first and foremost, thank you. secondly, the sooner the better. >> absolutely. >> obviously, right. and we would love to be kept apprised of the progress on that and maybe no the staff if we could have something that triggers a request to see what t the progress made on this is within the next few months, i think that would be helpful. and last willy, that, again, in, and sorry to be specific on

this, but the larger that information is made and the less surrounding information within which it is buried the betterer chance that consumer is going to understand exactly what those consequences are. but i love the idea that you will move it up to the front of the process. i think to the chairman's poin, you will have a much more informed, much more transparent transacti transaction, and that is good news. >> i'm going to yield back to the chairman, we get to help from mr. cooper, but thank you. a great line of questions and we'll yield mr. banks for any questions. yes? >> thank you, mr. chairman. >> mr. london, my wife's and i's experience with the v.a. loans has been tremendous, and we appreciate the service that we've had and the opportunity for us as a family, but i wonder what you can tell us the

problems have been raised to the levels of the organization have been raised? is secretary shulkin been briefed? is he aware of the issues and is he in tune with your strategies? >> the secretary has spoken to the secretary about this very issue. so he is personally aware. also our deputy secretary is well versed on this issue and in fact a couple of weeks ago met with mr. bright and others to discuss this issue. so this issue has the attention at the highest levels of va and they are extremely supportive of what we are doing. >> very good. i appreciate the secretary's leadership more and more every day and that testament of his interest and issues like these is a great compliment more so of his leadership. >> mr. cooper, i wonder if you can talk about your company's ethics and how you arrived at a place to be an ethical company not to take -- not to take advantage of some of these predatory examples that we've

heard about in the testimony. >> sure. thank you, mr. banks. that's a great question. we as a company are based on a set of values that we worked really hard on as a group, as all of our employees to set how we wanted to act as a company and we carry that out every day and it's something that we believe strongly in and so we came up with a mission, as well, and we want to help get veterans into homes, and we are very focussed on that. we offer earl refinances and we offer traditional cashout refinances, but our marking practices don't focus on bringing those people right after closing to churn through them and that's just something we felt is always in the best interest of we're looking out for the best interest of the

veteran in what we're doing we feel like, we want to educate veterans on the va loan and make best use of the program. >> have you seen a decline during your time in the industry? >> i wouldn't say this is a decline. i would think that the other members of the panel have said that there are a few bad actors out there, and this is not something really new. it is just becoming more prevalent when certain market factors change, interest rates tick up slightly or tick back down. it is very interest rate-depende rate-dependent. >> what would be your advice? how do we model those ethics and values that your company has taken so serious in your business in hopes that other companies will adopt those values, as well? >> i mean, i think that in and of itself is very difficult to, you know, from a congressional standpoint to model. i like what the chairman has

said about, you know, the veteran being able to make decisions for themselves. i like the idea of disclosures and being as transparent as we can be. there's always room for improvement in that area, and i really like what mr. london was saying about the va being able to step in and they've been very successful with that kind of process on the early intervention for servicing and so if they implement a similar process there, i think that could be very helpful to kind of rein this activity in. >> thank you. you give me great hope that other companies will emulate the same values and principles that your company does, as well and at the very least our hearing today will publicize that and give a public hearing to those thoughts and hopefully some of your competitors will erase that threshold, as well. thank you very much, mr. chairman, i yield back. >> thank you, mr. banks.

now i yield five minutes to the gentleman from california, mr. takano. >> thank you, chairman arrington. i want to express my gratitude for this hearing. i'm impressed that you're focusing on an area of consumer protection and that you've made this distinction between an absolute free marketplace and a government marketplace, and that the government marketplace is defined by money that's backed by the taxpayers or subsidized by the taxpayers and therefore the question of the veteran being able to make a decision all by himself is a bit modified here because that veteran is not making a decision that only solely affects hisser her assets and it's only the assets of the taxpayer that are at stake. so we have a duty to make sure that the program is set up properly and that there isn't, and i'm forgetting the term whether there is a moral liability and there is a lack of -- a moral hazard.

there is a moral hazard here, and the risk has been reduced greatly on the person benefiting from the decision. i hope, mr. chairman, we can hold some hearings into another area where the government distinction applies to the educational benefits and i'm disturbed that in another committee forum there is a proposal to do completely away from 90/10 and allow -- allow educational institutions to take 100%, and 100% of the revenue from the federal government including the federally backed student loans and i hope we can delve into that area, and i want to ask this question of -- i can't see the name back there, but the guy at the end. mr. cooper. as we approach, i want to be

careful that we -- that any action we take does not have any unforeseen consequences and one proposal that has been discussed is capping the lender fees and tying the cap to the benefit of the loan for the veteran so that the lender would not be able to collect fees in excess of what the veteran saves over a period of time. now would such a proposal or others like it to cap origination fees somehow help this problem of loan churning or do you think that as long as there were any fees permitted lenders would still seek to turn? >> thank you for the question. i believe personally there are restrictions in place in the amount of fees that can be charged. the difficulty comes when you are buying down the interest rate and for a discount points and that can then be rolled into the loan, and those things become another disclosure issue

and how far down did your rate go when you purchased these points, so to speak and so i think it does fall in line with the other pieces that we've talked about already is that there may be other ways to handle it. i don't -- i don't know the specifics of what the caps might look like in addition to what's already there, but it could be one solution. >> mr. london, have there been financial service organizations that have been fined by the va for predatory behavior? is there an ability to do that and have they been fined at all? >> we do have some ability. we have civil penalties that we can apply, but that is in reference to lenders who actually try to defraud the veteran, and to mislead the government through forgery. so it is very specific.

>> very specific. >> yes. >> but does ginnie mae being able to have this capacity in an analogous circumstance? >> we do have a decent amount of authority at ginnie mae to policing our security, and that's authority that we have been using and will continue to expand in the next few weeks. >> can you tell me whether or not you have actually fined companies for this? >> we have fined companies for a violation of the program in the space. >> do you publish the names of those companies that you have fined? >> no. >> why not? >> i don't know, but i will find out, and i'm happy to speak with you offline with the specific information. >> mr. london, would -- would this sort of authority be useful to the va if we were able to provide that authority? >> we would provide technical assistance for any type of

legislation that you think will be helpful in this regard. we are ready to assist you. >> i would be interested in meeting with both of you offline and to discuss this matter further. >> thank you, mr. takano and yet another gentleman from california, mr. correa, we yield five minutes. >> thank you, mr. chairman for having this most important hearing. i want to thank the folks here, as well. just a little bit about my background. i'm a licensed realtor and fo former loan broker, and gentlemen, as you know, this can be one of the dirtiest businesses out there. real estate and real estate loans. mr. cooper, have you had to fire anybody? >> i have not ha had to personally fire anybody, no. >> that's impressive because most of the time there are a lot of bad apples out there and you end up firing folks out there

because sometimes it doesn't matter what your mission statement is, the interest of making a buck sometimes outweighs the interest of following your mission statement. in reference to what my colleague, mr. takano brought up which is do you put this online? the state of california, if you have a doctor that is civilly fined that goes online. the bureau of automotive repairs, any violations go online. so you as a consumer have any issues, you immediately go online, see who the heck it is that you're dealing with and that information is disclosed to the world. it's not rocket science, folks. we can do this very easy and it is very hard also to try to second guess the economic motives and the financial motives for a veteran to refinance and buydowns and interest loans, fees and points and as you know, sir. sometimes what these folks do is they'll give you a discount on the points and they'll jack you

up on the fees and at the end of the day you get hit one way or the other. it would be interesting if you come up with not rocket science, but an application and an app somewhere so a veteran consumer can punch in a couple of numbers and come up with whether this is good or bad and another question now to have mr. london is, do you keep records of the folks, the loan originators and how many loans that they're originating so that you can detect whether there is a pattern there of churning or not? >> we do keep a record of every loan that is originated, but i'm glad that you asked that question so thank you for asking because one of the things that mr. cooper mentioned was that we have on the back end, if you will, for servicing of loans when a veteran goes into default is we have a comprehensive system when every single defaulted loan we have tremendous amounts of data so we can see exactly what the servicer is doing and we can intervene on the veterans

behalf. unfortunately, we don't have a system like that on the front end. however, we have recently led a contract where we are building the capability on the front end to get information on every single loan origination to have the same type of intervention and train in servicing the loan and we are very close to having that. >> i am glad to hear that and i am hoping to put as much information online and you direct our veterans to that website so that they can be a better educated consumer and good faith estimates and don't we still have those out there that when you originate a loan you get people something that says what that loan will cost and do we still have that? >> the borrower will get a loan estimate with that type of information. and again, i hope that you keep some kind of a database work on it up front so that if any of these folks are out there

originating loans and you begin to see a pattern that every two or three months they're churning a loan and if you can look at it, then whether they're doing it for their own benefit or the consumer actually benefits. >> absolutely. >> a lot of neat stuff we can do here to protect our veterans. >> mr. chair, i yield. >> thank you, mr. correa. i yield myself another five minutes. i think this has already proved to be a very productive discussion and we should continue it. most of my thoughts and comments and questions were philosophical. i mean, i just truly believe that choice for the consumer and disclosure is generally the best way to regulate. again, and mr. takano

articulated it better than i could. the market is skewed because the government has intervened and without government or the taxpayer there wouldn't be this market presumably, because if there weren't we shouldn't do it. so now comes the question -- and we should regulate and engage more readily on behalf of the taxpayer? and certainly, if there are ways to have better disclosure, and a simpler, easier way to digest what product and transaction that they're to engage in, by all means, i am hoping that you are reviewing that and constantly thinking of ways to do that. oftentimes, more regulation to protect the consumer ends up with more paperwork for the consumer and makes it more difficult and burdensome. but i would like to see that new disclosure product that you are working on, and as the ranking member would suggest for you submit that, it would be good

for all of you to look at it. but trying to regulate in this space a way that those products that we deem bad for the veteran, because they are churni churning, and because of some definition that we agree is bad, versus, and doing that without diminishing the opportunity for products that they may need. real products that are good, safe, sound, and useful to the veteran, so that they can maybe lower the payments. maybe they need to low ter the payments, and they know exactly what they are doing, and need that. help me, mr. motley and mr. cooper, tell me where the line is where it's a good product and it's useful and it's safe, it's sound. i mean, there's always a transaction cost for the institution and if there's more risk then the institution has to charge commensurate with the risk.

we see that in payday loans all of the time and i know folks without a payday loan they couldn't fix their car because a bank won't finance them. so, anyway, what are your thoughts about the line between the appropriate and sound versus the not so sound churning, where is that in define that for me. >> well, it's really not that easy to define because every situation is different. as mr. cooper said earlier, we try to look at all of our borrowers in terms of what's best for them and what's the best outcome for them for their particular situation and you have to take a lot of things into account and so i think that you want to have guardrails put in place on any program to avoid abuse and you want to have transparency so your point about a proper disclosure is a good one and having it done up front is also a very good one, but i think that we have to balance additional regulation with the

benefit of that and the onerousness and the extra cost of providing additional disclosures, but i think that the main point is that if we are sure that the veteran is benefiting from the refinance transaction and we can do that by doing what the costs are, and what the payment reductions are, how long will it take him to break even on that transaction and if that makes sense in his situation then we should have satisfied the net tangible benefit test and satisfy the va that we've done the right thing for that veteran. >> so let's assume that we can define a reasonable, useful sound product or transaction that allows the veteran to benefit, and the costs are commensurate and they're built in and the fees are commensurate with transaction costs and say we can define that. do you all, va and ginnie mae

have the authority, legal authority to define that and to regulate in this space in that regard? do you have the legal authority? and cite for me the legal authority because here's my thing. i want you to appropriately, because of the taxpayer and i think it is sometimes necessary and appropriate, but i don't want you to make it up. i don't want you to just create it out of the ether and stuff. we as congress do need to act to give you that legal authority and that's the way this -- this thing works, as you know. so do you have the legal authority and cite the legal authority for me, please. >> yes, sir. thank you for the question. as i mentioned, we have a draft regulation that we believe is a measured approach to address this issue and the specific statutory authority that we used, there are several. 38 usc 3710 is one, specifically subsection e.

you also have 3703c and 38 usc 501 are the three specific statutory references that we believe gives us the authority to regulate this issue? >> and summarize for me, if you would what that legal authority is if you can. i mean, i can go back to look it up and everybody here can, but give me the one of the three, the best nexus to that authority from which you would promulgate a rule to define this net tangible benefit. >> sure. i would be happy to provide you more detail for the ridiculous, record, but the one that i choose is 38 usc 501 and that specific reference gives the secretary the authority to regulate va programs across the board and the other two references that i gave you were specific to the loan guarantee program. again, i would be happy to provide you those details. >> i've taken too much time already. thank you for the answer. mr. ranking member, five minutes.

>> i think mr. motley made a really good point about ensuring that we do the right thing for the consumer, without overburdening the lender and i've heard from many lenders in el paso about how really well-intended legislation to f el paso about how really well-intended institutions hurt the you will smaer, independent originators and and the community best bet, and they make it more expensive and harder for us to originate than those who don't know the community are left with the choices and you see less capital coming into the community and your point is very well taken. i will say just in the example that we discussed and that mr. london has committed to in terms of prioritizing the net economic impact disclosure at the outset, and the o'rourke addendum to that that it be in 16-point type

so it would be easy to see so you know what you're getting yourself into doesn't seem incredibly onerous. it seems fair and workable from my perspective and not knowing your all business as well as you do. i hope that you could agree with that or that the industry would -- would see that as well, but your point's well taken that we want to make sure that we don't in any way undermine the ability to get these loans made or these refinancing transactions completed for those who would benefit from them. one of the last things, i think, mr. chairman, that we need to do is make sure that we're hearing from veterans on these proposals, and the veteran service organizations who advocate from them. i want to make sure that there are no additional suggestions or ideas or proposals that have gone unheard or unimplemented because in texas alone, we see just last year, 60,000 total home loans, 21,000 of those were

refinances and we want to make sure that we are advocating and protecting those veterans who have done everything we've asked them to do and have earned this, and that we're able to follow through on it. and lastly, i want to say this, mr. london. you really are a breath of fresh air. i just left the gao high-risk list round table about vha being able to implement corrections that will improve access to care and some of the responses we got. we'll have a conference call from this and you will see something later this year and in some cases we've seen no progress on any of these. so the fact that you came to this meeting with action already undertaken and specific proposals about what you're going to change, for example, moving up, this information to the outset of the transaction instead of the moment when you sign and you're under all that pressure, very refreshing. i loved seeing that, and i hope you will follow up on that by

keeping us informed on your progress on implementing this. i think we all agree sooner better than later and we would love to hear back from the industry and most importantly veterans on the efficacy of those efforts. so thank you all for what you're doing and your testimony today and i yield back to the chair. >> mr. takano, five minutes. >> doctor -- mr. london and who is the guy from the ginnie mae? i can't remember your name. mr. bright? mr. bright, would you say that ginnie mae is able to find

companies in this space, does that space include the va? i understand that the ginnie mae and am i understanding that the ga -- that the va and ginnie mae operate in partnership together to operate this program? >> so ginnie mae has the authority to issue rules that pertain to lenders' ability to access our security, and so we have broad statutory authority to write rules for access to our security as we need to protect it. so if you actually look at ginnie mae's charter of the top five mandates the first four relate to making sure there is liquidity in the mortgage market and the ability to promulgate, that the liquidity maintains in the mortgage market. once we issue the rules in the lending community and say here are the rules that we need to abide by and we have an 800-page issue or guide, if there are violations of that guide we can issue civil money penalties.

>> our rule makingable sit restricted to the ability to access the ginnie mae security and under what terms. we really can't issue civil money penalties for violations of the va program itself. nor could we issue civil money penalties for violation of consumer protection laws and that would be the fcc. so what we've been doing in those cases is where we see instances where we think it's possible that some of those laws are being violated and we're making referrals to those relative agencies. so our cmps, they pertain to violations that we put in place for access to our security. >> mr. cooper, you said earlier that during the financial crisis that overall, the va home loans held up the best. to what do you attribute -- to what do you attribute that? >> thank you for the question.

we attribute that to the underwriting that was in place from the va from well before the crisis and specifically, the way the va looks at it is not just at what's their payment and what's their dti? they're also looking at the back end. how much money do you have left over? the residual income, and so that's a really essential part of the program. the residual income protects the person at the end of the day that they still have money to live their daily life and hopefully they're still able to make their mortgage payments and that has been a big part of the va program and it's different from any other program that's out there and no one else requires that. >> mr. london, again, as we

look, do you have any other thoughts on -- on appropriate regulation or appropriate authority that you might need to police the bad actors that we're talking about today more effectively? >> sure. as i mentioned in my testimony, we have a draft regulation that we believe will take into account the very recommendations that you've heard from other panelists today. we evaluated things like the net tangible benefit and the requirements and the recruitment requirements and many other actions to see what will best handle the issue and i definitely have to get one point on the table and all of the panelists agree that we're talking about a relatively small number of lenders. >> i realize that. >> and the fact that we have drafted a rule very carefully that's going to not only impact those small number of actors,

it's also going to impact every single veteran's potentially, the access to his or her earned benefit. it will have an impact on every single lender or servicer that participates in the program and it would have a downstream effect on mortgage investors. so there's not just one answer or one thing that can be done. we looked at it holistically and as i said to the chairman, we believe we have the statutory authority to regulate in those areas. >> and you haven't published it yet because of the draft, and is there a kind of a comment period from the public that has to be undergone before it's implemented? >> the rule is currently drafted as a proposed rule and there will be an opportunity for public comment. >> and you don't have any idea? you've been taking input in crafting the rule? >> absolute she. the good news is in analyzing or thinking about the rule, we met

with the mortgage bankers association and their members and many other stakeholders as we were contemplating and evaluating what policy actions we needed to take under the draft regulation. we would welcome additional comments that anyone has to offer once the rule is published. >> and when do you anticipate the rule being published? >> unfortunately, i don't have a specific time line for you today, but i am happy to report that the rule, as i say, is in final draft and that's a good indication that we are very close to having it publicized in a relatively short timeframe, but i don't have a specific timeframe for you today. >> all right. well, thank you very much, and i yield back, mr. chairman. no closing comments? >> mr. connor, i'll give you more time if you have follow-up questions or comments. >> mr. chairman, thank you very much for the spirit of this hearing, and i congratulate you on that, and i hope we can continue the work in this vein. i really do respect your free

market views and i do entertain the thought that some of these products could be useful to some veterans and we don't want to be overly aggressive in regulation, and but again, we're talking about taxpayer resources that we have to protect. >> that's right. that's right. and you know, it's good that we can agree like this, huh? somebody get a picture. is somebody recording this? it's true. this is a space where we need to engage on behalf of the taxpayer because of the full faith in credit and we need to strike that balance and that's why i ask the question of defining it. how do you define this, because if somebody was charged any fee they may say, hey, i shouldn't be charged for this, but there is a cost for the institution for that transaction. so what does that threshold that's unreasonable and abusive and not a tangible benefit. i feel like i've heard enough to

know that the stakeholders, including the industry, can strike that and in fact have, and i give you credit and join the ranking member in his praising you and your team for the way you've conducted your business. it's best that a regulator engages the stakeholders prior to public comment. i mean, you're going to have agreement here, it seems like and we're talking about a few potentially bad actors, potentially, and maybe not bad actors. maybe they're just playing with the rules that exist. we just need to tighten them up so that we raise the bar of what we expect for safe and sound practices and the protection, if you will and minimal standards for fair practices. in this space, i'm curious because the ftc should be able to regulate unfair and deceptive

practices. have there been any cases referred to the ftc where there's been unfair and deceptive, and i understand there are lots of things going on here. they could disclose better, so let's do that. there is safety and soundness for the taxpayer and the program, but then there's real deception and unscrupulousness by offering one thing and it would be another thing. have those been referred to the ftc and have they acted upon those, mr. london? >> i am not personally aware of any referrals that have been made. >> mr. bright? >> yeah. what we've been doing is collecting solicitation materials that are generally from actually brokers, and not lenders themselves and what they do is they originate these loans and then sell them to a lender. we have a pile of them and i've

asked the veteran at ginnie mae to collect the solicitation materials they get, and i'll share them with you. they're not -- they're not lies. they're just -- you'll -- we'll sit down and talk to them. ? yes, sir, i'm trying to be real careful even in this hearing to not say predatory and deceptive. >> right. right. >> because the ftc ought to pursue that and bring the full force of the law against people that are doing that, and then where we need to tighten it up, where there's some fastness and looseness and for me, ultimately the safety and soundness of the program, this is offered because the taxpayers allowed this to happen because they love their veterans and they want them to have this benefit but they want it done in a fair and fiscally responsible way. >> your question was specific to the ftc. ? yes. >> we have been working very closely with the cfpb on veteran

complaints that received and we have made those referrals and we have provided information to the cfpb and not specifically to the ftc. okay. thank you. thank you, colleagues. great discussion. let's -- you know, continue in the -- in your effort as you describe to tighten up in this space and let us see whatever draft documents just for our information as the ranking member requested, if you would, and continue to notify us if you need the authority where you don't and don't regulate where you don't have the authority. that's not your job. that's the united states congress' job, article 1, but i feel good about what i've heard today and so good hearing.

this now concludes our hearing, and i ask unanimous consent that all members have five legislative days in which to revise and extend their remarks and include any extraneous material on today's hearing. without objection, so ordered. thank you all again for being here today. great hearing. god bless. >> tonight, american history tv is live with the look at the vietnam war's tet offensive with the discussion on the tet offensive and the battle of way with the author of way 1968, a turning point of the american war in vietnam we'll also hear from former stars and stripes john olson who makes up a new exhibit at the museum. you will hear from vietnam veterans and u.s. marines who fought during the tet offensive.

live on c-span3. next week marks the 50th anniversary of the vietnam war's tet offensive and tonight during american history tv prime time and the oral history of west point graduates who served in the vietnam war and it starts here on c-span3. >> the president of the united states. tuesday night, president donald trump gives his first state of the union address to congress and the nation, join c-span for a preview of the evening starting at 8:00 eastern and then the state of the union speech live at 9:00 p.m. following the speech, the democratic response. we will also hear your reaction and comments from members of congress. president trump's state of the union address tuesday night live on c-span. listen live with the free c-span radio app and available live or on demand on the desktop, phone or tablet at c-span.org. up next,