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From Banking and Finance Law Daily, January 29, 2014

CFPB charges mortgage company with mortgage insurance kickback violations

By Richard A. Roth, J.D.

The Consumer Financial Protection Bureau has filed an administrative complaint against PHH Corporation and its affiliated companies charging that the companies carried out a scheme under which mortgage insurers paid kickbacks in exchange for referrals. According to the CFPB, the arrangement persisted over approximately 15 years and allowed the companies to collect “hundreds of millions of dollars in kickbacks.”

Bureau charges. The bureau is bringing charges against PHH Corporation, the company’s two mortgage origination subsidiaries and its two insurance subsidiaries. According to the bureau, when mortgage loan borrowers needed mortgage insurance, the companies referred them to cooperating insurers. These insurers then bought reinsurance from the PHH insurance subsidiaries at a cost of up to 40 percent of the consumers’ premiums.

Specific allegations by the bureau include that PHH manipulated its allocation of insurance business in order to maximize the reinsurance payments it received and that consumers who did not buy mortgage insurance from a cooperating insurer were charged higher points on their loans by the loan originating subsidiaries. PHH continued to refer consumers to the cooperating insurers even when it knew the insurers were charging premiums higher than those of competing insurers, the CFPB also claims.

The CFPB’s contention is that these reinsurance payments constituted kickbacks that violated the Real Estate Settlement Procedures Act.

Investigation. According to the bureau, the arrangement lasted for approximately 15 years and was continuing as late as 2009. The investigation was begun by the Department of Housing and Urban Development. HUD had the authority to enforce RESPA until July 2011, when that authority was transferred to the CFPB.

CID challenge. In September 2012, the bureau issued its first ruling in a challenge to a civil investigative demand, rejecting PHH’s request to quash or modify the bureau’s CID. The company raised a number of objections to the scope of the information the bureau was seeking, but all of the objections were overruled in an order by CFPB Director Richard Cordray.

Cordray’s order rejected PHH’s assertion that the bureau had not adequately notified it of the purpose of the investigation. That information was provided in the CID and in the bureau’s initial letter telling the company that an investigation had begun.

The complaint that the CID was an overly broad, unduly burdensome fishing expedition also was rejected. The company had not shown how compliance with the demands would interfere with its business operations, the order said. Cordray noted that the bureau’s enforcement personnel had reduced some demands and offered to narrow others if the company identified specific problems.

The bureau was entitled to demand information relating to activities that occurred long enough ago that the statute of limitations would have lapsed, the order also said. PHH claimed the bureau was seeking information that was as much as 11 years old and, in limited cases, 17 years old. However, as long as the information was relevant to activities for which liability could be imposed, it could be demanded, the order said.

Companies: Atrium Insurance Corporation; Atrium Reinsurance Corporation; PHH Corporation; PHH Home Loans LLC; PHH Mortgage Corporation

MainStory: TopStory ConsumerCredit CFPB Loans Mortgages RESPA

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