CFPB accuses another mortgage company of illegal kickbacks

by Ryan Smith30 Jan 2014
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.

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.


  • by Tom | 1/30/2014 8:40:04 AM

    This is a joke. The industry was complaining about this since its inception. As memory serves me, HUD actually looked at this and said it was OK. Personally, I thought it was a sham, but if a Regulator tells you its ok, how does another regulator look at it 18yrs later and say, NO. If we don't stop all this look back garbage, the industry will never move forward.

  • by dave | 1/30/2014 8:42:04 AM

    CFPB is out of control

  • by David A Lewis | 1/30/2014 9:11:52 AM

    A while back, my company, Select Mortgage, looked at a re-insurance arrangement with Triad. We had our attorneys go over the arrangement, because it involved, of all things, the MI companies setting up off-shore corporations for the re-insurance.
    Once the attorneys OK'd the paperwork, we ran the idea past one of our major correspondent counterparties at the time, RBMG/NetBank. The Manager of Secondary at RBMG told me that they would not accept mortgages so insured from us, because Triad was not on the FNMA list.
    As it turned out, FNMA had a re-insurance deal with some of the MI guys, and if your company was not on their list, (i.e. FNMA couldn't make money) they wouldn't allow the deal.
    So. Let's have the CFPB put their flashlight up Fannie's wazoo and see what kind of RE deals they were involved in early in the New Millenium.
    As I recall, the MI premiums for the Re-Insurance program did not vary one basis point from the rates quoted on the MI cards. I hope the Admin judge crushes the CFPB on the matter.
    David A.


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