A new report published by Boston-based mortgage brokerage Own Up indicates that veterans and active-duty military can wind up overpaying by thousands of dollars for their Veteran’s Administration mortgage if they don’t shop around for the best deal.
“VA loans are one of the best financial products that exist in the US financial system,” said Patrick Boyaggi, cofounder and CEO of Own Up. “They put their lives on the line to defend our freedom and deserve some assistance in buying a home.”
The report analyzed Home Mortgage Disclosure Act, or HMDA, data from the top 20 biggest VA loan providers in the country. It suggests that in 2019, the difference between the highest-cost and lowest-cost lenders’ Annual Percentage Rate was 1.25 percent. On a $400,000, 30-year fixed-rate mortgage, that difference amounts to around $300 a month and more than $100,000 over the life of the loan.
A 2015 report from the Consumer Finance Protection Bureau found nearly half of home buyers do not shop for their mortgage. Boyaggi said that can be a very costly mistake.
“Rates can vary between lenders by a substantial margin, especially with VA loans,” he said. “I’m not here to single out any individual lender. This study is about empowering consumers with data.”
New Day Financial is a nationwide mortgage company for veterans, and several of its corporate leaders are military veterans, according to the company website. In 2019, the company had the highest rates on VA loans in the study by far. On average, the APR on their VA loans was 0.889 higher than average.
In an e-mail, Pooja Bansal, New Day Financial’s senior vice president of human resources and communications, did not dispute the numbers, but wrote, “The data provided in the Own Up Report is misleading. In 2019, the data cited on our company is almost exclusively for VA Home Equity Loans, and it is universally understood that those rates are historically higher across the industry.”
Boyaggi said his study used HMDA data for every VA loan New Day Financial originated in 2019, not just home equity loans.
The second-most expensive lender in the study was Fairway Independent Mortgage Corp. Their rates were 0.237 percent above the average. Scott Fletcher, president of Risk and Compliance at Fairway didn’t dispute the numbers, but said comparing lenders’ rates on all VA mortgages, home equity loans, renovation loans, and refinances lumped together isn’t a true comparison.
“Terms will vary. We are primarily a purchase lender,” he said. “Many of the lenders you see on that list are very heavy refinance lenders. The models and the customers are very different. If you compare Fairway to other lenders who are 70 percent purchases, you might get a different result. Lenders who focus on purchases may have a higher cost to originate on average.”
Boyaggi said his team did break the data down that way and the results were similar.
“These are the top 20 lenders,” he said. “Do you think one lender’s business model is so dramatically different than the others? We know they vary. We compared the 20 largest lenders and simplified the study to show the most important point. I would break the data down like that for every lender on that list if they’d agree to change their policies to treat every customer more fairly. “
Boyaggi said the report is based on averages. It’s possible that an individual consumer might get a great deal from even the highest-priced lenders. The take-home message for consumers is: All lenders and loans are not equal and it pays to shop around.