Four mortgage insurers agreed to pay about $15 million to settle claims that they paid kickbacks to mortgage lenders in exchange for business, the U.S. consumer watchdog said on Thursday.
The Consumer Financial Protection Bureau said the 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.
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, according to the settlement orders.
“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.
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 CFPB officials said appears to have begun 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 CFPB said the four mortgage insurers involved in its 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, the CFPB said.
Dodd-Frank gave the CFPB the authority to enforce the 40-year-old law.
“We believe these mortgage insurance companies funneled millions of dollars to mortgage lenders for well over a decade,” Cordray said.
‘AVOID THE DISTRACTION’
Several of the insurers in the settlement said they developed their captive reinsurance arrangements with guidance from U.S. regulators.
“While we believe our captive arrangements complied with RESPA and caused no harm to consumers, this settlement was an opportunity to eliminate distractions at an acceptable cost,” Radian Guaranty President Teresa Bryce Bazemore said in a statement.
United Guaranty also said it settled to “avoid the distraction” and that it believes its practices were fair.
MGIC said borrowers were given the chance to opt out of captive reinsurance transactions. Genworth said consumers paid the same amount for insurance regardless of whether they were part of a captive reinsurance arrangement.
CFPB officials 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.
Kent Markus, the CFPB’s enforcement head, said the four companies involved in the settlement are the only insurers writing policies today that engaged in captive reinsurance arrangements during the period leading up to the financial crisis.
He said steps such as a 10-year ban on putting new mortgages into captive reinsurance arrangements would prevent the practice from resurfacing as lending increases.
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