Consumer Bureau Fines Mortgage for Kickbacks

Four of the largest mortgage insurers in the United States paid millions of dollars in kickback to home lenders over the past decade. This was made in exchange for business and increasing insurance prices for consumers according to the Consumer Financial Bureau.  Consumer

The bureau fined United Guaranty Corp., Genworth Mortgage Insurance Corp., Radian Guaranty Inc., and Mortgage Guaranty Insurance Corp. The total fine is $15.4 million for the supposed scheme that was said to be a common practice before the nation’s housing collapse.

Lenders usually require homebuyers who can’t afford a 20 percent downpayment on a house to purchase mortgage insurance to offset the risk of default. The lender picks the mortgage insurance company and not the borrower.

The mortgage insurers often buy their own insurance to cover the risk of high losses on the mortgage. During its peak in 2007, more than 15 percent of loan originations had private mortgage insurance, according to the data from the Department of Housing and Urban Development.

The four mortgage insurance companies that were part of the settlement purchased reinsurance from subsidiaries of the lenders. This arrangement is known as captive reinsurance. Government officials have become suspicious because the companies’ reinsurance payments to the subsidiaries have become much larger than the reinsurance that was given. This made them believe that the mortgage insurers were paying lenders to get more business.

Officials from the CFPB said they were conducting a probe on mortgage lenders who have received kickbacks but didn’t give any details of the companies involved. The bureau didn’t say how much money the insurers paid lenders.

The bureau got the case in July 2011 from the inspector general of HUD. The four mortgage insurers are not allowed to enter new captive reinsurance arrangements with affiliates of mortgage lenders for the next 10 years.