Alert April 16, 2013

CFPB Takes Enforcement Action Against Mortgage Insurers

The CFPB announced enforcement actions against several mortgage insurers for alleged "kickback arrangements" with lenders—specifically, captive mortgage reinsurance arrangements. Under these arrangements, in exchange for the lender’s selection of the insurer for mortgage insurance, the insurer pays reinsurance premiums to a subsidiary of the lender. The CFPB alleged that the mortgage insurers violated Section 8 of the Real Estate Settlement Procedures Act, which generally prohibits unearned fees and kickbacks in exchange for referring a consumer to a real estate settlement provider, by paying fees to the lenders in exchange for referring customers. The CFPB also focused on ceded premiums alleging that the premiums were not for services actually performed and/or grossly exceeded the value of the services. According to Director Cordray, the ceded premiums "did not correspond to a proportionate transfer of insurance risk between the parties."

The consent orders call for civil money penalties totaling of $15.4 million in penalties and consumer redress. The mortgage insurers are prohibited from entering into any new captive mortgage reinsurance arrangements for a 10-year period and, similar to other enforcement actions taken by the CFPB, the consent orders require a compliance program, including the obligation to annually report the amount of all payments, funds or other disbursements paid or ceded by the mortgage insurer pursuant to any existing arrangement and the balance of funds held in any captive trust.