Their Service Entitles Them To Low-Cost Loans. But Veterans Often Pay More

Nov 11, 2020
Originally published on November 11, 2020 8:12 am

At the start of the year, John Forr saw interest rates falling and figured it was a good time to refinance the mortgage on his house in Punta Gorda, Fla. Forr is a retired Marine Corps colonel. He served for 27 years.

He wanted to get a VA loan — backed by the U.S. Department of Veterans Affairs — because he knew he was supposed to be able to get a better deal on the interest rate and other terms. Those are perks offered to vets and service members for their service.

But a new study finds that the rates charged on VA loans vary widely and that veterans like Forr often pay more than they should for their mortgages. That can end up costing them tens of thousands more over the life of the loan.

Forr started calling around. He says Quicken Loans and Loan Depot told him they could offer him a rate around 3.75%. That was lower than the rate he had at the time. He says he was just about to do the deal with Loan Depot when he happened to see an ad for a VA loan through a company called Own Up.

"They just popped up on Facebook one day, you know, I was probably looking at the grandkids or something. And I just clicked on the Facebook ad," Forr says. He went through Own Up and says he paid lower fees and got more than a full percentage point lower on the rate: 2.625%.

On his $330,000 loan, that means about $2,500 a year in lower payments compared to what Quicken Loans and Loan Depot were offering. He says when he told those lenders about the better deal, they then offered him a much lower rate.

"I was shocked that they didn't just tell me outright what the best rate was," Forr says. He thought as a veteran, with a loan backed by the VA, that's how it would work.

"I was shocked that they didn't just tell me outright what the best rate was," John Forr says.
Eve Edelheit for NPR

A lot of veterans assume the same thing, according to Patrick Boyaggi, the CEO of Own Up. It's a new company that helps people find a good deal on home loans through a group of lenders.

And today, on Veterans Day, his company is releasing a study that finds a wide disparity in VA loan rates from different lenders.

Boyaggi says that, like Forr, many veterans think they're supposed to get a special deal on a VA loan, and so many don't shop around. But he says, while these loans are backed by the VA, they're made by private companies. And he says some lenders will hit people with a much costlier and worse deal than they qualify for.

"And they're veterans," Boyaggi says. "To sit there and think to yourself that this person who served our country is now going to get taken advantage of and they had no clue, they had no idea."

The Own Up study examined federal lending data for the top 20 lenders for VA loans in the U.S., and looked at the annual percentage rate the companies offered on all the loans they made in 2019.

"When we looked at the spread, candidly, we were quite surprised that it was as wide as it was," Boyaggi says. "The best lenders and the worst lenders were so far apart from one another."

The study found Navy Federal Credit Union offered the lowest rates. At the high end was a lender called New Day USA, which sponsors the Army-Navy football game. New Day's TV ads, featuring plenty of American flags, say that it wants to "do whatever is best for the individual service person."

But the study found on average, New Day's APR was 1.25 percentage points higher compared to Navy Federal. Over the life of a $300,000, 30-year loan, that's more than $70,000 in additional interest payments.


In a statement, New Day said its goal is "to assist servicemembers and veterans to receive the benefits that they so rightly deserve." The company added, "we take great pride in our important work. Serving veterans is at the core of all we do."

New Day also claimed that the study "has a serious flaw." The company said that's because the study lumped different types of VA loans together, such as purchase loans with cash-out refinances.

But lending watchdogs are skeptical of that explanation. Mike Calhoun, president of the nonprofit Center for Responsible Lending, says the study's methodology is sound. "The information from this lender does not explain why their borrowers are being charged so much more than other lenders are charging their VA borrowers," he said.

The study also found similar cost disparities when it looked only at a single VA loan category such as cash-out refinances.

It found that Quicken Loans and Loan Depot both charged borrowers about the average APR that Americans paid on mortgages in 2019.

Quicken Loans' Rocket Mortgage said in a statement that it's "very hard to make accurate comparisons of rates offered to different clients, from different lenders, at different points in time," and that the company goes "above and beyond to provide the best client experience in the industry."

Calhoun and Boyaggi both say the big takeaway from the Own Up study is that people need to shop around and find the best rate they can, and negotiate for the best rate. If you don't, Boyaggi says, "it could be one of the most costly mistakes you make in your financial life."

Editor's note: Quicken and Loan Depot are recent financial supporters of NPR.

Copyright 2020 NPR. To see more, visit https://www.npr.org.

DAVID GREENE, HOST:

So today is Veterans Day, and we have a new study just out this morning finding that some lenders are overcharging military veterans for home loans. We're talking about many thousands of dollars here. NPR's Chris Arnold has more.

CHRIS ARNOLD, BYLINE: John Forr is a retired Marine Corps colonel. He served for 27 years.

JOHN FORR: Did you see the big fish just jumped?

ARNOLD: Forr is giving me a virtual tour of his harbor-side house in a development in Punta Gorda, Fla. He's got a dock and a little powerboat. And...

FORR: Can you see the pool?

ARNOLD: Oh, yeah. Oh, that's gorgeous. Yeah.

FORR: Right? Can you see the kayaks and the dock?

ARNOLD: Actually, Forr is making me kind of jealous of his house. But at the start of the year, interest rates were falling, and he wanted to refinance with a VA loan. That is a loan backed by the U.S. Department of Veterans Affairs. Vets and servicemembers are supposed to be able to get an extra-low interest rate and better terms that way. So he started calling around, and he says the company Loan Depot told him...

FORR: We can do a VA loan for you, but it's going to be at 3.75% interest. And they had a lot of fees in there.

ARNOLD: But it was a lower rate than he had at the time. So he says he was just about to do the deal with Loan Depot when he happened to see an ad for a VA loan through a company called Own Up. He went through them, and he says he paid lower fees and got more than a full percentage point lower on the rate. On his $330,000 loan, that means about $2,500 a year in lower payments. He says when he went back and told Loan Depot about the better deal, they then offered him a much lower rate, too.

FORR: As a veteran, you know, you kind of expect you're getting something from the government. I was shocked that they didn't just tell me outright what the best rate was.

ARNOLD: A lot of veterans assume the same thing, according to Patrick Boyaggi. He's the CEO of Own Up. It's a new company that helps people find a good deal on home loans through a group of different lenders. He says veterans think they're supposed to get a really good interest rate on a VA loan, so many don't shop around. But Boyaggi says while these loans are backed by the VA, they're made by private companies, and he says some will hit people with much higher costs and basically a worse deal than they qualify for.

PATRICK BOYAGGI: And they're veterans. To sit there and think to yourself that this person who served our country is now going to get taken advantage of and they had no clue - they had no idea.

ARNOLD: So Boyaggi and his company did a study. They're releasing it today. They took the top 20 lenders for VA loans and looked at the annual percentage rate that the companies charged borrowers on all the loans they made last year.

BOYAGGI: And so when we looked at the spread, candidly we were quite surprised that it was as wide as it was, that the best lenders and the worst lenders were so far apart from one another.

ARNOLD: The study found that Navy Federal Credit Union offered people the lowest rates. At the other, higher-cost end of the spectrum was a lender called New Day USA.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED PERSON #1: It's a new day for veterans who want to refinance.

UNIDENTIFIED PERSON #2: That's me.

UNIDENTIFIED PERSON #1: As a vet...

ARNOLD: The company is a sponsor of the Army-Navy football game. It runs TV ads with plenty of American flags.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED PERSON #3: We want to do whatever's best for the individual service person.

ARNOLD: But the study found that of the top 20 VA lenders, New Day charged the highest interest rates, more than a full percentage point higher than Navy Federal, which over the life of a $300,000, 30-year loan is more than $70,000 more in interest payments. New Day, in a statement, said that the study has a, quote, "serious flaw." It said that's because the study lumps together different types of VA loans that are not the same.

But Mike Calhoun is skeptical of that explanation. He's the president of the nonprofit Center for Responsible Lending.

MIKE CALHOUN: The information from this lender does not explain why their borrowers are being charged so much more than other lenders are charging their VA borrowers.

ARNOLD: As far as Loan Depot - the company that John Forr first talked to - the study found that, during 2019, its rates were about average. The company is also a recent financial supporter of NPR. Boyaggi, with Own Up, says the big takeaway from his study for him is that people need to shop around and find the best rate that they can and negotiate for the best rate because if you don't...

BOYAGGI: It could be one of the most costly mistakes you make in your financial life.

ARNOLD: That's good advice for VA loans and other types of mortgages, too.

Chris Arnold, NPR News.

(SOUNDBITE OF CAVES OF STEEL'S "MAGIC SMOKE OUT") Transcript provided by NPR, Copyright NPR.