Mortgage Insurers Funneled Kickbacks to Lenders, Alleges CFPB

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 Consumer Financial Protection Bureau
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On Thursday, the Consumer Financial Protection Bureau filed complaints against four mortgage insurers who the CFPB claimed had paid kickbacks to mortgage lenders. Mortgage insurance is often required by mortgage lenders when customers are unable to make a 20 percent down payment on a home mortgage. Insurance protects the lender from a customer defaulting on their mortgage, but it also adds to the borrower's overall monthly payments.

Lenders, rather than borrowers, typically select the mortgage insurer. Through the arrangement, lenders were able to send business to insurers that then funneled millions of dollars back to the lenders over the span of 10 years.

The CFPB found the arrangement was in violation of the Real Estate Settlement Procedures Act of 1974, which makes kickbacks in real estate transactions illegal. The Dodd-Frank Act moved enforcement of the old law to the new CFPB.

Because the practice targets homeowners with little equity, the CFPB says that inflated costs as a result of illegal kickbacks can be devastating, and increase the chances the homeowners will default on their mortgages.

"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 four companies involved in the settlement are Genworth Mortgage Insurance Corporation, based in Richmond, Virginia; the Greensboro, N.C.-based United Guaranty Corporation; Radian Guaranty of Philadelphia; and Mortgage Guaranty Insurance Corporation headquartered in Milwaukee.

The complaint against the mortgage insurers and lenders in regards to kickbacks calls for a combined penalty of $15.4 million, an end to the practice of kickbacks, and ongoing compliance monitoring.

Lenders, You're Clearly on Notice

This isn't the first time the CFPB has tackled predatory mortgage practices.

In January, the agency issued new rules to ban predatory lending to high-risk individuals, including interest-only and no-documentation loans. The rules included a caveat that loan payments be no more than 43 percent of a borrower's monthly income.

In February, the CFPB issued warnings about ongoing mortgage relief scams, and are targeting companies that promise to offer help for underwater homeowners, especially those pretending to be government or government-endorsed agencies.

See the CFPB's release for more on its complaints and proposed consent orders sent to the four major lenders.

Molly McCluskey is a contributor to The Motley Fool.


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Terrapin26

If this is true, that's why the whole onslaught against regulation.

April 08 2013 at 11:58 AM Report abuse +1 rate up rate down Reply
vinmanla

"The complaint calls for a $15.4 million penalty,etc." Let's see. The kickbacks went on for over 10 years. So I guess the insurers only kicked back 1.54 million a year? I think not. The penalty should be 3 times the amount obtained illegally plus the governments cost in preparing the case and future monitoring to prevent recurrence. This is a slap on the wrist.

April 06 2013 at 10:42 PM Report abuse +1 rate up rate down Reply
petrheadshrinker

Should change the name from lenders to givers, but of public money and not theirs, just to be correct.

April 05 2013 at 11:30 PM Report abuse rate up rate down Reply
usbobaruba

Look Dodd and Frank pushed the rules that lenders should not ask people if they could pay back the loan.

April 05 2013 at 9:41 PM Report abuse rate up rate down Reply
laugh

Apparently they are good at passing rules but pretty much suck at enforcing them.

April 05 2013 at 9:06 PM Report abuse rate up rate down Reply
Dan and Marie

Also letting them get away with mortgage payment being no more than 43% of income I can tell you is still not good. As I said 41% can become totally unaffordable. Especially as in our case one person becomes disabled. SSDI is much less than a real paycheck. It should be no more than 31% including the PMI insurance. Having spoken to others I find that our PMI with Genworth is extremely high.

April 05 2013 at 8:27 PM Report abuse +1 rate up rate down Reply
1 reply to Dan and Marie's comment
barryaclarke

I remember my first mortgage was at 28% of income. That was back in the early 70's before the government pushed banks into making lones to people who clearly couldn't afford them. Now, I look back and wonder about when you pay your mortgage faithfully, denying yourself the newest big screen TV while your neighbor defaults on his mortgage (while buying iPhones, TV's and new cars) and the government forgives his debt and reduces his mortgage (with your tax dollars), why did I do it?. Sorry, but this just brings a big burst of methane from my lower extremities when I think about it……………

April 06 2013 at 12:55 AM Report abuse rate up rate down Reply
Dan and Marie

And this helps me how. Genworth holds our mortgage insurance Countrywide was the original mortgage, now Bank of America. They can't do this anymore going forward,but those of us who got screwed are stuck paying mortgage insurance premiums that are more than likely inflated. We pay $157 per month, so even though or Freddie Mac backed mortgage was modified, I still have to pay this extra money probably for the life of the loan, since I have no equity any longer. In fact my home is still underwater by 50% of what is owed, so when will I ever see the 20% equity required to remove the insurance premium. Never. When they calculated the affordable payment for the modification mortgage insurance was not part of the calculation, so in fact my payment is nearly 40% of our income not the 31% required by HAMP. I can barely afford the modified payment, and when the modification resets in two more years, I will have no choice but to foreclose, as I will still not be able to sell for what is owed on it. hey should force them to remove or reduce the mortgage insurance premium by 50% on every loan that was written while this was going on.

April 05 2013 at 8:12 PM Report abuse +1 rate up rate down Reply
kluj1

And like nobody knew this was going on in the crazy real estate days.....yah yah right.....and in the end....a fine, a new law and then the same old crap under a different name !! Next

April 05 2013 at 7:52 PM Report abuse rate up rate down Reply
Richard

"the profits are moved to a nation with no tax, skirting around the U.S. 35 percent rate." Not quite true. There may be a a taxable capital gain tax and withholding tax on the sale of intellectual property transferred outbound

April 05 2013 at 7:04 PM Report abuse rate up rate down Reply