Potential kickback deals being checked into over billions in premiums.
The consumer finance watchdog group for the government is currently performing an examination and analysis of deals that brought in billions of dollars in premiums that were charged by mortgage insurance companies to borrowers through the banks that made the loans.
These deals were suspected to have brought in kickback.
According to the civil lawsuits which have been filed by legal experts and borrowers, this is because the banks were said to have applied pressure to the mortgage insurance companies into offering them in order to obtain a portion of the loan coverage income made by the bank.
There have now been several subpoenas served by the Consumer Financial Protection Bureau (CFPB) to MGIC Investment, American International Group, Radian Group, and Genworth Financial.
The CFPB required answers to written questions and documents regarding deals in mortgage insurance.
The companies in question have not been responding to requests for mortgage insurance commentary.
It is common for borrowers who have made a down payment that is smaller than 20 percent to have to purchase mortgage insurance in order to provide the bank with protection in the case that a default should occur. As these insurers essentially charge the same rates, borrowers will often select the provider that their lender has recommended.
According to the lead attorney in this class-action lawsuit, Mike Calhoun, lenders would typically direct their borrowers toward the insurers that they prefer the most. He stated that this practice has been common since the start of the 2000s. The lenders would then receive part of the premiums from the mortgage insurance companies by purchasing reinsurance from a company that the lender owned, using rates that were significantly bumped up.
Calhoun explained that “It’s just a grossly overpriced reinsurance that is many times more expensive than what arms-length reinsurance costs in the general market.” The lead attorney is also the president of a consumer advocacy group called the Center for Responsible Lending. He explained that banks were generally protected from any actual risk on the reinsurance.
The mortgage insurance companies have been referring to the bank payments as reinsurance as it is illegal to make payments in the form of kickbacks or fees in exchange for business in this sector.