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Another M.I. Kickback Settlement Reached

Regulatory action has been taken against another mortgage insurance company for allegedly paying illegal kickbacks. The action comes despite prior government guidance that said such reinsurance arrangements were ok.

The Consumer Financial Protection Bureau began issuing civil investigative demands in June 2012 against mortgage insurance companies over their re-insurance practices.

The bureau in April reached settlements with Genworth Mortgage Insurance Corp., Mortgage Guaranty Insurance Corp., Radian Guaranty Inc. and United Guaranty Corp.

However, Genworth, MGIC and Radian all issued statements at the time indicating that they were operating based on guidance issued by the Department of Housing and Urban Development in 1997.

Republic Mortgage Insurance Corp. is the latest mortgage insurer to face legal and regulatory actions over alleged illegal kickbacks.

A proposed consent order has been reached between the CFPB and Republic, a statement Friday said.

The order must still be approved by a federal judge.

The Winston-Salem, N.C.-based company is accused of paying illegal kickbacks to mortgage lenders across the country in violation of the Real Estate Settlement Procedures Act. The practices were widespread.

According to the regulator, the practices have been prevalent for more than a decade.

“The CFPB believes that RMIC provided kickbacks to mortgage lenders by purchasing captive reinsurance that was essentially worthless but was designed to make a profit for the lenders,” the CFPB said. “The kickbacks were in exchange for referrals of private mortgage insurance business from the lenders.”

The CFPB noted that the mortgage insurer is currently under administrative supervision with the North Carolina Department of Insurance as it resolves outstanding insurance claim obligations through a court-approved corrective plan.

The consent order requires Republic to pay a $100,000 penalty to the CFPB. The amount of the penalty reflects Republic’s inability to honor its current payment obligations.

Republic must also stop paying kickbacks and is prohibited from entering a captive reinsurance arrangements with affiliates of home lenders. It is also not allowed to obtain captive reinsurance on any new mortgages for 10 years.

Any pre-existing reinsurance arrangements that Republic has in place will be terminated, with Republic forgoing any right to funds not directly related to collecting on reinsurance claims.

Republic will be subject to CFPB monitoring and required to file reports ensuring its compliance with the order.

In conjunction with the consent order, the CFPB filed a complaint with the U.S. District Court for the Southern District of Florida.

In July, Fifth Third Bank won a dismissal of a civil lawsuit filed in U.S. District Court for the Western District of Pennsylvania over alleged RESPA violations tied to mortgage insurance kickbacks.

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