The Consumer Financial Protection Bureau brought an administrative enforcement action yesterday against morgage originator giant PHH Corporation alleging, among other things, violations of the anti-kickback provisions of The Real Estate Settlements Procedures Act (RESPA). To quote the agency's press release:
Today, the Consumer Financial Protection Bureau (CFPB) initiated an administrative proceeding against PHH Corporation and its affiliates (PHH), alleging PHH harmed consumers through a mortgage insurance kickback scheme that started as early as 1995. The CFPB is seeking a civil fine, a permanent injunction to prevent future violations, and victim restitution. ... Mortgage insurance is typically required on loans when homeowners borrow more than 80 percent of the value of their home. ... Mortgage insurance can be harmful when illegal kickbacks inflate its cost. Increasing the burden on borrowers who already have little equity increases the risk that they will default on their mortgages. [RESPA] protects consumers by banning kickbacks that tend to unnecessarily increase the cost of mortgage settlement services. RESPA also helps promote a level playing field by ensuring companies compete for business on fair and transparent terms. A CFPB investigation showed that when PHH originated mortgages, it referred consumers to mortgage insurers with which it partnered. In exchange for this referral, these insurers purchased “reinsurance” from PHH’s subsidiaries. Reinsurance is supposed to transfer risk to help mortgage insurers cover their own risk of unexpectedly high losses. According to today’s Notice of Charges, PHH took the reinsurance fees as kickbacks, in violation of RESPA. The CFPB alleges that because of PHH’s scheme, consumers ended up paying more in mortgage insurance premiums. ... The Bureau believes that from the start of the arrangements, and continuing into at least 2009, PHH manipulated its allocation of mortgage insurance business to maximize kickback reinsurance payments for itself. PHH Corporation and its affiliates are specifically accused of:
Kickbacks: Over the approximately 15-year scheme, the CFPB alleges that PHH set up a system whereby it received as much as 40 percent of the premiums that consumers paid to mortgage insurers, collecting hundreds of millions of dollars in kickbacks;
Overcharging Loans: In some cases, PHH charged 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; and
Creating Higher-Priced Insurance: PHH pressured 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.