By Emily Stephenson
WASHINGTON, April 4 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
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
"We believe these mortgage insurance companies funneled
millions of dollars to mortgage lenders for well over a decade,"
'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
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
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.