The Consumer Financial Protection Bureau said Thursday it would soon enforce four measures to stop improper kickbacks by mortgage insurers to mortgage lenders in exchange for business. The organization said the practice has been prevalent for more than 10 years, and it filed complaints and proposed consent orders against four national mortgage insurers to put a stop to it.
The companies named in the announcement are Genworth Mortgage Insurance Company, Mortgage Guaranty Insurance Corporation, Radian Guranty Inc. and United Guaranty Corporation.
Mortgage insurance is typically required on a mortgage loan when homeowners borrow more than 80 percent of the value of their home to protect the lender against the risk of default, the CFPB explained. Then, the borrower pays the monthly mortgage payment plus the insurance premium.
The damage a kickback poses comes when a mortgage insurance company helps a borrower get a loan even if they are unable to make a 20 percent down payment on a home. If the mortgage insurer is offering mortgage lenders money in exchange for lending to high-risk borrowers, these homeowners may soon find out that they are unable to make payments and could eventually end up in heaps of debt or even out on the streets.
“Illegal kickbacks distort markets and can inflate the financial burden of homeownership for consumers,” said CFPB Director Richard Cordray. “We believe these mortgage insurance companies funneled millions of dollars to mortgage lenders for well over a decade. The orders announced today put an end to these types of arrangements and require these insurers to pay more than $15 million in penalties for violating the law.”
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To stop this practice, the CFPB outlined a three-pronged approach. First, the four named companies are prevented from engaging in the practice, and they are prohibited from violating the Real Estate Settlement Procedures Act. Violations could end in additional fines.
Speaking of fines, the four insurers will pay the CFPB $15.4 million in penalties, a number generated by their pervasiveness of conduct, relative culpability and cooperation with the organization, it explained. Finally, the companies will be subject to monitoring by the CFPB and required to make reports to ensure further compliance.
Image: rpongsaj, via Flickr