Wednesday, December 11, 2013
The Associated Press
WASHINGTON - The U.S. consumer finance watchdog is investigating deals that transferred billions in premiums charged to mortgage borrowers from mortgage-insurance companies to the banks that made the loans.
The deals amounted to kickbacks because the banks pressured insurers into them in exchange for a share of the banks' mortgage-insurance business, according to civil lawsuits and legal experts.
The Consumer Financial Protection Bureau has served subpoenas to American International Group Inc., MGIC Investment Corp., Genworth Financial Inc. and Radian Group Inc., the companies said in public filings this week. The CFPB asked for documents and answers to written questions about captive mortgage reinsurance deals, they said.
Mortgage borrowers whose down payments are less than 20 percent typically must buy private mortgage insurance that protects the bank in case they default. Because mortgage insurers charge roughly the same rates, borrowers generally choose an insurer recommended by their lender.
In a 2009 case filed in Pennsylvania, borrowers said Countrywide Financial Corp. steered them to choose mortgage insurers. In return, they said, the insurers shared their premiums with the lender by buying reinsurance from a division of Countrywide called Balboa. Countrywide is now part of Bank of America.
Reinsurance is used by insurance companies to transfer some of their potential risk to another company. In this case, some of the risk was transferred from the mortgage insurers back to companies affiliated with the banks.
"The mortgage insurers were bullied into this," said Guy Cecala of Inside Mortgage Finance.