These allegations are appearing in the mortgage coverage sector and are being investigated by federal regulators.
The latest insurance news has revealed that federal regulators have started a massive investigation into allegations of a mortgage coverage kickback scheme that has driven costs for homeowners skywards for nearly two decades.
The first action in the investigation has been conducted around a bank and lender kickback scheme.
The Consumer Financial Protection Bureau announced the first insurance news that showed that the investigation is focused specifically at a scheme where lenders and banks that required private mortgage coverage companies to obtain backup policies from reinsurers that were owned by the lenders. This would make the reinsurance essentially worthless and, therefore, produced a much larger than necessary cost for homeowners.
The lenders have been heavily investigated in this insurance news, which involves heavy accusations.
This insurance news revealed that the reinsurance generated improper payments back to the lender because the mortgage insurer had to pay into it in order to obtain new customers. The officials from the Consumer Bureau said that this type of a scheme became possible through the overall requirement that lenders have that the home buyers who make a purchase with an under 20 percent down payment have to purchase private mortgage coverage in order to mitigate the increased loan risk.
In the insurance news released from the Consumer Bureau at the end of last week, it stated that there had been a settlement for accusations that had been held against four major private insurers. This includes MGIC Investment Corp., which was accused of having improperly sending kickbacks in the form of funds back to lenders which, in turn, directed home buyers toward them for coverage.
In total the insurance news outcome was that the four insurers involved in this settlement had agreed to pay fines worth $15.4 million for the actions in which they were involved that took off during the housing explosion in the United States. The Bureau also added that its investigation is ongoing and that there could be significant results as additional mortgage lenders continue to undergo further examination.