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From Banking and Finance Law Daily, November 18, 2013

CFPB alleges mortgage insurer paid illegal kickbacks to lenders

By Katalina M. Bianco, J.D.

The Consumer Financial Protection Bureau is alleging that Republic Mortgage Insurance Corporation (RMIC) paid illegal kickbacks to mortgage lenders in exchange for business. The CFPB further alleges that these practices have been prevalent for more than 10 years. The bureau filed a complaint and proposed consent order against RMIC that will require RMIC to pay a $100,000 penalty to the CFPB.

The current action by the bureau follows four similar actions announced by the bureau this year: Genworth Mortgage Insurance Corporation; Mortgage Guaranty Insurance Corporation; Radian Guaranty Inc.; and United Guaranty Corporation.

“Kickbacks for mortgage insurance referrals are illegal, and can drive up costs for consumers seeking to buy a home,” said CFPB Director Richard Cordray in the bureau’s announcement. “The order announced today will put an end to this practice and require RMIC to pay a $100,000 penalty for violating the law.”

Complaint. RMIC is a North Carolina corporation with its principal place of business in Winston-Salem, N.C. RMIC transacts business throughout the United States. RMIC engaged in the business of selling private mortgage insurance and ceded premiums to lenders in exchange for purported “reinsurance.”

The CFPB alleges that RMIC violated Section 8 of the Real Estate Settlement Procedures Act (RESPA, 12 U.S.C. § 2607) by engaging in widespread kickback arrangements with lenders across the country. Section 8 prohibits: (1) the payment and acceptance of any fee, kickback, or thing of value in exchange for referring a consumer to a real estate settlement service provider; and (2) the giving or accepting of any portion, split, or percentage of a charge for a real estate settlement service other than for services actually performed.

The CFPB further alleges that RMIC provided kickbacks to mortgage lenders by purchasing captive reinsurance that was essentially worthless but was designed to make a profit for the lenders. The kickbacks were in exchange for referrals of private mortgage insurance business from the lenders.

Proposed consent order. The proposed order would prohibit RMIC from entering into any new captive mortgage reinsurance arrangements with affiliates of mortgage lenders, and from obtaining captive reinsurance on any new mortgages, for a period of 10 years. As any pre-existing reinsurance arrangements come to a close, RMIC will forfeit any right to the funds not directly related to collecting on reinsurance claims. The proposed order would also prohibit RMIC from paying illegal kickbacks or otherwise violating RESPA.

RMIC would pay $100,000 in penalties under the proposed order. The penalty amount reflects a number of factors, including that RMIC currently is under administrative supervision with the North Carolina Department of Insurance due to its inability to honor its payment obligations in full, according to the bureau. In addition, any violations of the terms of the proposed order could result in additional fees.

Finally, under the order, RMIC would be subject to monitoring by the CFPB and required to make reports to the CFPB in order to ensure their compliance with the provisions of the order.

The proposed consent order has been filed with the United States District Court for the Southern District of Florida.

Companies: Republic Mortgage Insurance Corporation; Genworth Mortgage Insurance Corporation; Mortgage Guaranty Insurance Corporation; Radian Guaranty Inc.; United Guaranty Corporation.

MainStory: TopStory CFPB CrimesOffenses Loans Mortgages

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