The government's consumer finance watchdog agency is ordering four national mortgage insurers to pay $15.4 million combined to resolve claims that the companies paid millions in kickbacks to mortgage lenders for more than a decade.
The Consumer Financial Protection Bureau filed complaints and proposed consent orders against Genworth U.S. Mortgage Insurance., United Guaranty Corp., Radian Guaranty Inc., and Mortgage Guaranty Insurance Corp.
The agency asserts the companies received lucrative business referrals from lenders. In return, the insurers bought reinsurance that was essentially worthless but designed to make a profit for the lenders.
The agency says the types of kickbacks were common practice in the years leading up to the 2008 financial crisis.
Mortgage insurance is typically required on loans when homeowners borrow more than 80 percent of the value of their home. It protects the lender against the risk of default. Generally, the lender, not the borrower, selects the mortgage insurer. The borrower pays the insurance premium every month in addition to the mortgage payment.
"Mortgage insurance can be especially harmful when its cost is inflated by illegal kickbacks," the CFPB said in a written statement. "Increasing the burden on borrowers who already have little equity increases the risk that they will default on their mortgages. Widespread defaults, in turn, can be damaging for communities and the housing market."