Announcing settlements with four national mortgage insurers, the Consumer Financial Protection Bureau (“CFPB”) continues to pick up steam on certain enforcement activities. Importantly, the companies at issue in this instance were not big banks that the public generally associates with CFPB enforcement practices. The Dodd-Frank Act consolidated into the CFPB certain enforcement activities previously spread across a number of federal agencies. In addition to an internal administrative adjudication process that has already resulted in hundreds of millions of dollars of assessed penalties, the CFPB can initiate original lawsuits in courts throughout the country. This round of settlements requires the four insurers to pay $15 million in penalties to the CFPB.
The CFPB filed complaints against Genworth Mortgage Insurance Corporation, Mortgage Guaranty Insurance Corporation, Radian Guaranty Inc., and United Guaranty Corporation, alleging violations of section 8 of the Real Estate Settlement Procedures Act (“RESPA”) associated with kickback arrangements with lenders across the country. The CFPB alleged that the mortgage insurers paid lenders through “captive reinsurance arrangements.” “Reinsurance” (insurance for insurance companies) is often purchased in order to cover insurers’ own risk of unexpectedly high losses. A “captive” arrangement arises where the lender both originates the loan and, through its own subsidiary, provides the reinsurance.
In addition to the significant monetary penalties associated with the settlements, the four insurers agreed to end their practices and engage in compliance monitoring and reporting. For financial institutions making mortgage loans, there is clearly a heightened level of scrutiny of all aspects of the lending process, and you should consult regulatory counsel to assess any risks in your processes and referrals.