CFPB Alleges Mortgage Insurer Operated 15-Year-Long Kickback Scheme

phhThe Consumer Financial Protection Bureau has begun proceedings against PHH Corporation for its involvement in a 15-year-long mortgage insurance kickback scheme that collected hundreds of millions of dollars from homeowners.

The CFPB announced Wednesday that it is seeking a civil fine, an injunction to prevent future violations and victim restitution from PHH Corporation and its residential mortgage origination subsidiaries, PHH Mortgage Corporation and PHH Home Loans LLC, as well as it’s wholly-owned subsidiaries, Atrium Insurance Corporation and Atrium Reinsurance Corporation, for violating the Real Estate Settlements Procedures Act and harming consumers through a kickback scheme beginning as early as 1995 and continuing until at least 2009.

The New Jersey-based corporation and its affiliates are accused of:

  • Creating a system where it received as much as 40 percent of the premiums that consumers paid to mortgage insurers, collecting hundreds of millions of dollars in kickbacks;
  • charging more money for loans to consumers who did not buy mortgage insurance from one of its kickback partners. In general, they charged these consumers additional percentage points on their loans;
  • pressuring mortgage insurers to “purchase” its reinsurance with the understanding or agreement that the insurers would then receive borrower referrals from PHH. PHH continued to steer business to its mortgage insurance partners even when it knew the prices its partners charged were higher than competitors’ prices.

An investigation by the CFPB showed that when PHH originated mortgages, it referred consumers to its mortgage insuring partners. In exchange for the referral, the insurers purchased reinsurance – a product that transfers risk to help mortgage insurers cover their own risk of unexpected losses – from PHH’s subsidiaries. As a result, consumers ended up paying more in mortgage insurance premiums.

Mortgage insurance, which is typically required on loans when homeowners borrow more than 80% of the value of their home, protects the lender against the risk of default.

Illegal kickbacks inflate the costs of insurance, which increases the burden on borrowers and increases the likelihood they will default on their mortgages. RESPA protects consumers by banning kickbacks and helps promote a level playing field by ensuring companies compete for business with fair and transparent terms.

The case will be tried by an Administrative Law Judge, who will hold hearings and make recommended decisions regarding the charges. No timeline has been set for a decision.

In recent months the CFPB has been cracking down on mortgage related fraud. In mid-January, the Bureau ordered Fidelity Mortgage Corporation, a Missouri mortgage lender, to pay $81,000 over an illegal kickback scheme.

The CFPB isn’t just going after corporations committing fraud, but taking step to better protect consumers, as well. Two weeks ago, the CFPB unveiled rules to protect mortgage borrowers, especially those who are military servicemembers,

Consumer Financial Protection Bureau Takes Action Against PHH Corporation For Mortgage Insurance Kickbacks [Consumer Financial Protection Bureau]