Are Equity Cash Outs A Lifeline For Veterans Or A Trap?

The VA is worried that refinancings could be “subprime lending under a new name”

- Prashant Gopal & Elizabeth Dexheimer

Eric Kandell is making his pitch to veterans. Wearing a red T-shirt, with the words “Low VA Rates” emblazoned across his chest, he looks fit and muscular, as if he had stepped off an Army base himself. In this YouTube video and others, he tells current and former service members how they can take tens of thousands of dollars in cash out of their homes. They can pay off credit cards, remodel a kitchen, install a swimming pool, or travel to Las Vegas. “Do whatever you want,” he tells them. “Imagine your home is like an ATM.”

Kandell is targeting borrowers from the U.S. Department of Veterans Affairs mortgage program. He’s the 43-year-old president of a company whose very name is a come-on: Low VA Rates LLC. It’s among the lesser-known financial outfits dominating the business of selling cash-out VA mortgage refinancing, which totaled $41 billion worth of new loans over the past year.

This boom is alarming federal regulators. Lenders, who can charge thousands of dollars in fees, are encouraging veterans to extract as much as 100 percent of their home equity. Many of the borrowers have poor credit and low incomes, and they could soon find themselves deep underwater. Multiple refinancings helped spark the 2008 financial collapse. In a recent Federal Register notice, the VA itself says financial companies are reviving “sub prime lending under a new name.”

Lenders say they’re providing a valuable service to cash-strapped veterans. Many borrowers use the money to pay off high-rate credit cards, medical bills, or home repairs. “These guys were asked to put their life on the line, and we trusted them to make the right decision in defending our freedom,” Kandell says. “Yet we want to dictate what they do with their finances. I don’t find that to be American.”