In April 2013, the CFPB sued four mortgage insurers, the United Guaranty Corporation, Radian Guaranty, Genworth Mortgage Insurance Corporation, and Mortgage Guaranty Insurance Corporation, for paying “millions of dollars to home lenders in exchange for business” and “raising insurance prices for consumers.” The four firms would buy “backup insurance from lender-owned reinsurance companies” which was allegedly “worthless” and “amounted to improper payments to the lender by the mortgage insurer to acquire new customers.” If a buyer put less than 20% down for a home, the lender would select the mortgage insurance company, while also setting up “captive reinsurance arrangements” that provided “secondary coverage” and “steered mortgage insurers to their units for reinsurance.” The insurers would pay more than it was worth “turning the overpayments essentially into kickbacks to the lenders.” The four firms settled the case and paid a total of $15.4 million.

• The CFPB filed a lawsuit against United Guaranty Corporation in US District Court Southern District of Florida. [CFPB v. United Guaranty Corporation , case no. 1:13-cv-21189-KMV (Williams), filed 04/04/13]

• The CFPB filed a lawsuit against Radian Guaranty, Inc. in US District Court Southern District of Florida. [CFPB v. Radian Guaranty Inc., case no. 1:13-cv-21188-JAL (Lenard), filed 04/04/13]

• The CFPB filed a lawsuit against Genworth Mortgage Insurance Corporation in US District Court Southern District of Florida. [CFPB v. Genworth Mortgage Insurance Corporation , case no. 1:13-cv-21183-JLK (King), filed 04/04/13]

• The CFPB filed a lawsuit against Mortgage Guaranty Insurance Corporation in US District Court Southern District of Florida, Miami Division. [CFPB v. Mortgage Guaranty Insurance Corporation , case no. 1:13-cv-21187-Graham/Goodman, filed 04/04/13]

• The CFPB fined “Genworth_Mortgage Insurance,_United Guaranty, Mortgage Guaranty Insurance and_Radian_Guaranty_a total of $15.4 million.” The four mortgage insurers “paid millions of dollars in kickbacks to home lenders in exchange for business” and “raising insurance prices for consumers.”

“The four mortgage insurance firms involved in the settlement bought reinsurance from subsidiaries of the lenders, an arrangement known as ‘captive reinsurance,’ according to the_CFPB. Government officials became suspicious because those firms’ reinsurance payments to the subsidiaries were much greater than the reinsurance that was provided, leading them to believe that the mortgage insurers were also paying the lenders to steer business their way.” [Danielle Douglas, “Consumer Bureau Fines Mortgage Insurers $15M Over Alleged Kickbacks,” Washington Post, 04/04/13]

• The CFPB said the “investigation revolves around a scheme in which banks and other lenders required private mortgage insurers to seek backup insurance from lender-owned reinsurance companies. The backup insurance essentially was worthless and amounted to an improper payment to the lender by the mortgage insurer to acquire new customers, consumer bureau officials said. Such a scheme was made possible, they said, by the general lenders’ requirement that buyers with less than a 20% down payment take out private mortgage insurance to cover the additional risk of the loan.” [Jim Puzzanghera, “Regulators Probing Alleged Mortgage Insurance Kickback Scheme,” Los Angeles Times, 04/04/13]

• Mortgage insurance is a “product that many borrowers were required to purchase if they didn’t make a sizable down payment when buying a house. The bureau claims that, because of the kickbacks, home buyers may have had to pay more for the mortgage insurance.” [Peter Eavis, “Consumer Bureau Says 4 Insurers Made Kickbacks To Mortgage Lenders,” The New York Times, 04/04/13]

• “The companies, which did not admit any guilt, said they believed that the reinsurance arrangements were proper and did not hike costs for home buyers. But all the firms said they settled to put the matter behind them. In the typical case of a buyer putting less than 20% down, the lender usually selects the mortgage insurance company. Starting in the mid-1990s, a system was developed to allow for illegal kickbacks to lenders for lucrative business referrals, consumer bureau officials said. Lenders set up so-called captive reinsurance arrangements — subsidiaries that provided secondary coverage — and steered mortgage insurers to their units for reinsurance, which spreads the risk of possible loan losses. But insurers paid much more for reinsurance than the coverage was worth, the bureau said, turning the overpayments essentially into kickbacks to the lender. The reinsurance “was essentially worthless but was designed to make a profit for the lenders,” the bureau said.” [Jim Puzzanghera, “Regulators Probing Alleged Mortgage Insurance Kickback Scheme,” Los Angeles Times, 04/04/13]

• “The mortgage insurers are prohibited from entering into any new captive mortgage reinsurance arrangements with affiliates of mortgage lenders, and from obtaining captive reinsurance on any new mortgages, for a period of ten years. Radian said it would pay $3.75 million under the settlement. MGIC will pay $2.65 million, according to its statement._Genworth_and_United Guaranty_will pay $4.5 million each, according to their statements.” [Shanthi Bharatwaj, “Mortgage Insurers to Pay $15 Million in Penalties for Alleged Kickbacks,” The Street, 04/04/13]