Four mortgage insurers have agreed to pay about $15 million to settle claims that they paid kickbacks to mortgage lenders in exchange for business. The Consumer Financial Protection Bureau (CFPB) alleged that the kickbacks took place over more than a decade leading up to the U.S. financial crisis. This increased mortgage insurance costs for consumers. Genworth Financial unit Mortgage Insurance Corp., American International Group Inc.’s United Guaranty Corp., Radian Group Inc.’s Radian Guaranty Inc., and MGIC Investment Corp.’s Mortgage Guaranty Insurance Corp. were the insurers involved in the settlement. CFPB Director Richard Cordray had this to say:
Homeownership is difficult and expensive enough for most people without extra costs imposed by financial kickbacks that are kept hidden from them.
Bureau officials said the CFPB is continuing to investigate lenders who may have received kickbacks. U.S. regulators have been cracking down on practices believed to have harmed borrowers in the years leading up to the 2007-2009 financial crisis. The consumer bureau, which was created in 2010 by the Dodd-Frank law, oversees mortgages, credit cards, student loans and other products.
The mortgage scheme at issue in the settlement, which according to CFPB officials began in the mid-1990s, involved home buyers who made down payments of less than 20 percent. Because those were seen as riskier loans, lenders often required the borrowers to buy mortgage insurance. Lenders generally choose the company that will provide mortgage insurance. Those insurers then may obtain their own insurance, known as “reinsurance,” to guard against losses.
The four mortgage insurers involved in the settlement purchased reinsurance from subsidiaries of the lenders, an arrangement known as “captive reinsurance,” and paid higher prices for it than they should have. In effect, this meant insurers paid mortgage lenders to steer business their way in violation of the Real Estate Settlement Procedures Act (RESPA), which prevents kickbacks in real estate transactions. Dodd-Frank gave the CFPB the authority to enforce the 40-year-old law. These mortgage insurance companies “funneled millions of dollars to mortgage lenders for well over a decade,” according to Cordrey. Interestingly, several of the insurers in the settlement said they developed their captive reinsurance arrangements with guidance from U.S. regulators.
Source: Insurance Journal
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