Consumer bureau fines mortgage insurers for kickback scheme


The four companies agreeing to the penalties are Genworth Mortgage Insurance Corporation, United Guaranty Corporation, Radian Guaranty Inc., and Mortgage Guaranty Insurance Corporation.

Under the practice, the CFPB claims that mortgage insurers would provide widespread kickbacks to lenders by buying "captive reinsurance" that would turn a profit for the lenders, but was effectively worthless. Essentially, mortgage lenders would set up a subsidiary that would actually provide reinsurance to the mortgage insurer. But the CFPB maintains such deals were mainly a way to provide kickbacks to the lenders by the insurers in exchange for continued business.

Cordray said the CFPB found that the premiums mortgage insurers were paying did not correspond with the coverage provided with the lenders.

"In essence, then, the lenders were extracting financial kickbacks from the mortgage insurers in exchange for referring business to them," he said.

Under the proposed settlement the CFPB struck with the insurers, the companies agreed to stop obtaining any captive reinsurance for new mortgages for a decade and will be required to forfeit any funds on existing reinsurance policies that are not directly tied to claims. The companies are also required to report to the CFPB on their compliance with the new requirements and existing consumer protection laws.

The investigation into the kickback scheme was initiated by the Department of Housing and Urban Development, which passed it on when the CFPB opened its doors in 2011.