4 Mortgage Insurers Pay $15 Million Settlement For Kickbacks

On Thursday, April 4, four major mortgage insurers agreed to pay a $15 million settlement, over claims they paid kickbacks to mortgage lenders in exchange for business. The settlement was brokered by the Consumer Financial Protection Bureau, which reported the shady deals took place over more than a decade leading up to the U.S. financial crisis and may have boosted mortgage insurance costs for consumers. As it goes with settlements, the four insurers—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—neither admitted nor denied the regulator’s findings. The scam appears to have started in the mid-1990s; it involved homebuyers who made down payments of less than 20 percent—because these mortgages were seen as riskier loans, lenders often required the borrowers to buy mortgage insurance. The lenders chose the company to provide the mortgage insurance; this insurance then found their own insurance (known as reinsurance). The CFPB said the four mortgage insurers involved in this scheme purchased reinsurance from subsidiaries of the lenders, an arrangement known as “captive reinsurance,” and paid higher prices for it than they should have. In other words, the insurers paid mortgage lenders to send business their way, a clear violation of the Real Estate Settlement Procedures Act (RESPA).”Homeownership is difficult and expensive enough for most people without extra costs imposed by financial kickbacks that are kept hidden from them,” CFPB Director Richard Cordray said. The Dodd-Frank Act gave the CFPB the authority to enforce the 40-year-old RESPA. The CFPB also oversees mortgages, credit cards, student loans, and other products. Kent Markus, the CFPB’s enforcement head, reported that the four companies involved in this settlement are the only insurers currently writing policies that engaged in captive reinsurance arrangements in the years leading up to the financial crisis of 2008. Unfortunately, the CFPB declined to specify how much the insurers paid to the reinsurance arms of lenders, how much lenders and insurers may have benefited from the deals, or which additional companies could face enforcement actions—per usual, the companies many millions of dollars off of mortgage borrowers, and are paying really a pittance in penalties.