The CFPB alleged Wednesday that PHH Corporation and its subsidiaries – PHH Mortgage Corporation, PHH Home Loans, Atrium Insurance Corporation and Atrium Reinsurance Corporation – took kickbacks in the form of mortgage reinsurance. The CFPB is seeking a civil fine, a permanent injunction and victim restitution.
Mortgage insurance is usually required when homeowners borrow more than 80% of their home’s value. Usually it is the lender, not the borrower, who selects the mortgage insurer, and the borrower pays the insurance premium every month in addition to the mortgage payment.
“Mortgage insurance can be harmful when illegal kickbacks inflate its cost,” the CFPB said in a statement. “Increasing the burden on borrowers who already have little equity increases the risk that they will default on their mortgages.”
The CFPB alleged that PHH used mortgage reinsurance arrangements – which typically helps mortgage insurers cover their own risk – to collect illegal kickbacks. According to the CFPB, PHH referred its customers to mortgage insurance companies with which it was partnered. The companies purchased reinsurance from PHH subsidiaries in return for the referral, and PHH took the reinsurance fees as kickbacks, the CFPB alleged. As a result, according to the agency, consumers ended up paying artificially inflated premiums. Over the 15 years the scheme was allegedly in operation, PHH received as much as 40% of the premiums consumers paid for mortgage insurance, thereby collecting hundreds of millions of dollars in illegal kickbacks, according to the CFBP.
The case will be tried by an administrative law judge from the CFPB’s Office of Administrative Adjudication.
The Consumer Financial Protection Bureau is accusing one of the biggest mortgage originators in the country of orchestrating a mortgage insurance kickback scheme that started as early as 1995.