CFPB Takes Enforcement Actions Against Mortgage Insurers


American Banker
By: Rob Blackwell
April 5, 2013

The Consumer Financial Protection Bureau announced four enforcement actions Thursday against mortgage insurers, ordering them to pay $15 million in penalties and stop "improper kickbacks" to mortgage lenders in exchange for business.

The four companies involved were Genworth Mortgage Insurance Corp., United Guaranty Corp., Radian Guaranty Inc., and Mortgage Guaranty Insurance Corp. four of the biggest mortgage insurers in the country. The CFPB alleged that the firms provided kickbacks to lenders by "purchasing captive reinsurance that was essentially worthless but was designed to make a profit for the lenders."

"Illegal kickbacks distort markets and can inflate the financial burden of homeownership for consumers," said CFPB Director Richard Cordray in a press release. "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."

All four companies agreed to pay the fines and change their practices.

At issue are so-called "captive reinsurance arrangements." Borrowers typically must pay for mortgage insurance when they cannot afford to make a 20% down payment. The CFPB said the mortgage insurance firms were unnecessarily taking out reinsurance contracts with a lender's own subsidiary - a "captive reinsurance arrangement" that effectively allowed the insurance firms to provide additional money to the lender.

Under the proposed settlement, which must still be approved by a court, the companies are prohibited from entering into any mortgage reinsurance arrangements for at least ten years and must pay $15.4 million in fines. The CFPB said the fines were based on the insurers' finances, its "relative culpability" and its cooperation with the agency.

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