The Consumer Financial Protection Bureau initiated an administrative proceeding against PHH Corp. and its affiliates for allegedly harming consumers through a mortgage insurance kickback scheme that started as early as 1995 in its latest enforcement action.
The Bureau is seeking a civil fine, a permanent injunction to prevent future violations and restitution.
Illegal kickbacks inflate the costs of mortgage insurance and increases the burden on borrowers who have little equity, along with increasing the likelihood that they will default on their mortgages, the CFPB said.
PHH was found to have referred consumers to mortgage insurers with which it partnered. In exchange, these insurers purchased 'reinsurance' from PHH’s subsidiaries.
"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," the CFPB stated.
PHH was accused of collecting hundreds of million of dollars in kickbacks, overcharging loans and creating higher-priced insurance. PHH denies the charges and is vowing to fight the accusations, according to a statement released from the company:
"We firmly believe that we complied with the Real Estate Settlement Procedures Act and other laws applicable to our mortgage reinsurance activities. Our mortgage reinsurance subsidiaries were subject to regulatory supervision by their respective state insurance regulators, and their mortgage reinsurance agreements were structured in accordance with applicable regulatory guidance. We obtained an independent actuarial analysis of our mortgage reinsurance contracts to verify that such contracts incorporated appropriate transfers of risk and that the reinsurance premiums received by our mortgage reinsurance subsidiaries were commensurate with the risk assumed."
Back in November 2013, the CFPB also filed an enforcement action against Republic Mortgage Insurance Corp. for allegedly paying kickbacks to mortgage lenders in exchange for insurance business.
The CFPB opened an investigation into the reinsurance practices of PHH Corp. two years ago.