NEW YORK (TheStreet) -- The Consumer Financial Protection Bureau ordered four mortgage insurers to pay $15.4 million in penalties for "improper kickbacks" to mortgage lenders.
The CFPB alleges that Genworth Mortgage Insurance Corporation
According to the complaint, the mortgage insurers were funneling millions of dollars to lenders with the payments dressed up as a "reinsurance" product provided by new subsidiaries created by the lenders. Yet payments made as supposed reinsurance premiums did not correspond to a transfer of insurance risk between the parties, the CFPB said.
"The lenders were extracting financial kickbacks from the mortgage insurers in exchange for referring business to them," the agency surmised.
"While mortgage insurance can help borrowers get a loan, the financial burden it imposes is clearly magnified if the cost is inflated by illegal kickbacks. That harms not only consumers, but entire communities, the housing market, and the economy as a whole," the Richard Cordray, director of the CFPB, said in a statement. "Today's actions are an important step in our quest to improve markets for consumers by getting rid of harmful practices that impede their pathway to opportunity. "
The CFPB is also exploring the lender side of the captive reinsurance arrangements.
The mortgage insurers are prohibited from entering into any new captive mortgage reinsurance arrangements with affiliates of mortgage lenders, and from obtaining captive reinsurance on any new mortgages, for a period of ten years.
Radian said it would pay $3.75 million under the settlement. MGIC will pay $2.65 million, according to its statement. Genworth and United Guaranty will pay $4.5 million each, according to their statements.
Rohit Gupta, president and CEO of Genworth U.S. Mortgage Insurance, a unit of Genworth Financial, said it settled to resolve uncertainties but disputed the charges made in the complaint.
"When Genworth USMI developed its captive reinsurance arrrangements, it received guidance from the Department of Housing and Urban Development (HUD), which previously had responsibility for this area. HUD indicated that these arrangements are permissible if certain requirements are met," said Gupta. "Genworth followed the guidance, and had the arrangements tested by independent third parties to verify that the HUD requirements were met. Further, consumers paid the same amount for the underlying insurance whether or not their loan was part of a captive reinsurance arrangement."
The other parties also said they believed their captive arrangements were fair.
"We are pleased to put this behind us," stated Teresa Bryce Bazemore, president of Radian Guaranty. "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 so that we can continue our primary focus of writing new, profitable mortgage insurance and helping low down-payment borrowers realize the dream of homeownership."
-- Written by Shanthi Bharatwaj New York.
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