The Consumer Financial Protection Bureau is taking an enforcement action against four private mortgage insurance companies for allegedly paying kickbacks to lenders for business referrals.
The CFPB contends the four MI companies paid the kickbacks to mortgage lenders through captive reinsurance arrangements. These arrangements are “essentially worthless,” the bureau said, and designed to make a profit for the lenders.
The four MIs are Genworth Mortgage Insurance Corp., United Guaranty Corp., Radian Guaranty Inc. and Mortgage Insurance Corp.
The CFPB said the four companies have agreed to change their practices and pay $15 million in fines.
“Illegal kickbacks distort markets and can inflate the financial burden of homeownership for consumers,” said CFPB director Richard Cordray.
“We believe these mortgage insurance companies funneled millions of dollars to mortgage lenders for well over a decade. The orders announced today put an end to these types of arrangements and require these insurers to pay more than $15 million in penalties for violating the law.”
Under the settlement, United Guaranty and Genworth will pay $4.5 million in fines. Radian will pay $3.75 million in fines and MGIC $2.65 million.
“Based on our investigation, we believe that the exertion of this pressure led these mortgage insurance companies to funnel many millions of dollars to lenders for well over a decade,” Cordray said.
A spokeswoman for United Guaranty said, “Along with most other major mortgage insurers, United Guaranty has agreed to resolve a potential challenge by the CFPB to industrywide practices involving captive reinsurance which were largely discontinued in 2008-2009. United Guaranty believes these practices complied with the law and were fair to consumers, but settled the matter to avoid the distraction and expense of protracted litigation.”
Teresa Bryce Bazemore, president of Radian Guaranty, said in a statement, “We are pleased to put this behind us. 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 downpayment borrowers realize the dream of homeownership.”
The private MIs remain subject to an investigation by the Minnesota Department of Commerce relating to the captive reinsurance arrangements, Radian noted, and it added it is currently facing private lawsuits alleging, among other things, that the captive reinsurance arrangements constitute unlawful payments to mortgage lenders under RESPA. It said it intends to vigorously defend the company in this investigation and against these claims.
The other companies named in the settlement had not responded to a request for comment by press time.
All four are the only remaining legacy private MI firms operating after the crisis. The industry has begun a comeback of sorts, as Radian and MGIC both successfully tapped the debt and equity markets for new capital. In addition, two players have entered the business, Essent and National MI, and Arch Capital has bought CMG from former parents PMI and CUNA Mutual.