In a recent announcement, the Consumer Financial Protection Bureau (CFPB) declared that it is going to take enforcement actions against 4 top mortgage insurers in order to end their kickback arrangement with the mortgage lenders of the country. The investigation was initiated by the Office of Inspector General at the Department of Housing and Urban Development (HUD). On July, 2011, the investigation was transferred to the CFPB.
These insurance companies will have to pay more than $15 million in penalty. The top four mortgage insurance companies who will have to pay the penalty include United Guaranty Corporation, Genworth Mortgage Insurance Corporation, Radian Guaranty Inc., and Mortgage Guaranty Insurance Corporation. In return of those kickbacks, these insurers received excellent business referrals from the lenders.
Actions to be taken against the insurance companies
Apart from paying fines to the CFPB, The four top mortgage insurance companies have also agreed to change their practices. Certain things that they now need to follow include:
Monitoring and reporting: The four top mortgage companies will be continuously monitored by the CFPB. They are also required to make reports to the CFPB. This will have to be done in order to ensure their compliance as suggested in the provisions of the orders of CFPB.
Stop certain practices: The CFPB has prohibited the mortgage insurers from entering into any new "captive mortgage reinsurance arrangements" with the affiliates of mortgage lenders. Apart from this, they are also forbidden from obtaining captive reinsurance on any new mortgages for the next 10 years. Once the existing reinsurance arrangements come to an end, they will have to give up their right to the funds which are not directly related to collecting on reinsurance claims. Apart from all these, they are also prohibited from paying bribes or violating the Real Estate Settlement Procedures Act. If they violate any of these prohibitions, then it could result in additional fines.
Penalty payments
All the accused mortgage insurers will have to pay $15.4 million as penalty to the CFPB. This amount of penalty depends on certain factors like: relative culpability of the insurer, each mortgage insurer's finances, the frequency of its conduct, its cooperation with CFPB, etc.
It can now be expected that such illegal actions by the mortgage insurers will come to an end!