As I finish up this week’s blogs focusing on the efforts of the Consumer Financial protection Bureau (“CFPB”) I want to discuss a situation relating to the mortgage industry that the Bureau was faced with and how it enforced its policy. Earlier this month the CFPB announced its final decision in its effort to cease mortgage lenders from receiving improper kickbacks from insurers in exchange for their business. The CFPB filed complaints against four separate mortgage insurance companies in an effort to cease this conduct which was believed to be prevalent over the past ten years.
The complaint alleged that four insurance companies, Genworth Mortgage Insurance Corporation, United Guaranty Corporation, Radian Guaranty, Inc. and Mortgage Guaranty Insurance Corporation received business referrals from lenders in exchange for kickbacks. The CFPB stated that these types of kickbacks were common practice in the years leading up to the financial crisis of the mortgage and banking industry.
As part of the settlement, the four mortgage insurance companies have agreed to no longer issue kickbacks to the lenders and will pay the agreed upon penalty of $15.4 million. Should these companies be caught engaging in this conduct they will be subject to additional fines. Furthermore, the CFPB is requiring the insurance companies to be closely monitored to ensure compliance and must submit reports showing their conformity.
The way the mortgage industry is set up, consumers are usually required to carry mortgage insurance on a loan greater than 80% of the value of the home. The purpose of this insurance is to protect the lender from the risk of the consumer defaulting on the loan. In an economy when interest rates were extremely low, consumers were failing to put more than the standard 20% down on a home and thus forced to take out mortgage insurance to cover their costs. Making a large monthly mortgage payment created financial strain on many consumers. When you combine a large mortgage payment with a monthly insurance premium that was inflated due to illegal kickbacks, it put consumers and our economy at an extreme disadvantage. The CFPB saw an opportunity to protect consumers and our struggling economy and intervened.
If you feel your rights have been violated as a consumer, contact SmithMarco P.C. for a free case review.