The Consumer Financial Protection Agency is conducting a broad investigation into mortgage insurers’ business practices amid allegations of illegal kickbacks to bankers in order to gain access to customers in need of private mortgage insurance.
In most cases, private mortgage insurance is required when borrowers can’t afford the 20 percent down payment needed for a conventional home loan.
The allegations of wrongdoing center around possible violations of the Real Estate Settlement Procedures Act, which bars a lender from steering a borrower to a particular mortgage insurer with whom the lender has a business relationship.
Minnesota regulators initiated the probe, alleging that mortgage insurers paid banks fees to win business, in violation of RESPA.
The fledgling consumer protection agency was created by the Dodd-Frank financial services reform law, and has assumed responsibility for enforcement of RESPA from the federal Department of Housing and Urban Development.
Companies confirming the investigation through securities filings include American International Group, MGIC Investment Corp., and Genworth Financial.
In its quarterly earnings report filing Friday, AIG also said its subsidiary, United Guaranty Corp., is negotiating a proposed consent order with the Minnesota Commissioner of Commerce.
The order deals with allegations that UGC violated RESPA, the Fair Credit Reporting Act and other state and federal laws “in connection with its practices with captive reinsurance companies owned by lenders,” according to the filing.
It adds, “UGC cannot predict if or when a consent order may be entered into or, if entered into, what the terms of the final consent order will be.”
In its filing, Genworth said that it intends to “vigorously defend such actions.”
This article was originally posted on PropertyCasualty360.com, a sister site of Credit Union Times.