In early April 2013, the Consumer Financial Protection Bureau (CFPB) announced in a press release that it was taking action against four mortgage insurance companies that paid kickbacks to lenders to send business their way. Here are 5 things people considering filing Las Vegas bankruptcy might want to know about the settlement the CFPB reached.
- The four companies involved were Genworth Mortgage Insurance Company, United Guaranty Corporation, Radian Guaranty, Inc., and Mortgage Guaranty Insurance Corporation. The CFPB considers these mortgage insurers as key players in the market in the lead-up to the housing bust.
- These companies all paid mortgage lenders to send referrals their way by a complicated set of transactions. The lenders created insurance subsidiaries making them “captive” to the lenders. These subsidiaries then issued reinsurance (that is insurance for insurers) to the mortgage lenders. The captive reinsurance was in fact worthless, turning it into a kickback instead of risk adjustment.
- When people buy houses with less than 20 percent equity, they are obligated to buy mortgage insurance, which the lender usually does on the homeowner’s behalf. With the kickbacks, the lenders didn’t have to find the cheapest mortgage insurance and instead chose their preferred insurers.
- The consequence of the kickbacks was to inflate the price of mortgage insurance, which fell on the homeowners. As a result, the homeowners had higher monthly payments, which cut into their income, and raised the likelihood that they would be forced to default on their mortgages.
- In the settlement, the four mortgage insurers promised to do three things: end the practice of kickbacks for captive reinsurance; pay a $15 million fine; and comply and report on their operations to the CFPB.
What might be lost to readers of the press release is how homeowners benefit from the settlement. Although it’s possible that the $15 million fine will go to some affected mortgagors, there’s no evidence that it will. Thus, if you were affected by the mortgage insurance kickback scheme, you might be no better off from the CFPB’s settlement. If you are having problems with your mortgage, an experienced Las Vegas bankruptcy lawyer can help you explore your options.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-880-5554 to set up your free consultation.