By Maya Jackson Randall
WASHINGTON--The Consumer Financial Protection Bureau is probing
American International Group Inc. (AIG), Genworth Financial Inc.
(GNW) and other firms as part of a broad, industry-wide
investigation into whether companies' mortgage insurance practices
comply with federal real-estate law.
New details of the probe were disclosed in AIG's Aug. 2 filing
to the U.S. Securities and Exchange Commission. AIG said the
consumer watchdog in June issued subpoenas, more formally known as
Civil Investigative Demands, to its subsidiary United Guaranty
Corp. and other mortgage companies to obtain documents and answers
to written questions.
Similarly, in its Aug. 3 SEC filing, insurance firm Genworth
said it received an information request from the consumer bureau in
January, followed by an official Civil Investigative Demand on June
20. Previously, the inspector general at the U.S. Department of
Housing and Urban Development had been examining the company's
insurance arrangements, but the office withdrew the subpoena after
the consumer bureau sent its demand for information, Genworth
said.
"We intend to cooperate with the CFPB as appropriate in
connection with the CFPB Demand," said Genworth in the corporate
filing. Genworth, like other mortgage insurers, is also facing
class-action lawsuits alleging that certain business arrangements
were in violation of the law. Genworth noted that it intends to
"vigorously defend such actions."
The consumer bureau's probes come amid allegations from state
officials that mortgage insurers paid banks fees to win business,
in violation of the Real Estate Settlement Procedures Act, which
bars such payments in real-estate transactions. Consumers who want
to buy homes using down payments of less than 20% often are
required to buy mortgage insurance, which protects the lender if
the borrower defaults. Starting in the 1990s, many mortgage lenders
got into that business, setting up their own "reinsurance"
subsidiaries that took on a portion of the risk in exchange for a
portion of the insurer's premiums.
Those arrangements, however, could violate federal real-estate
law if a lender steers a borrower to a particular mortgage insurer
with whom the lender has a business relationship. Also, in those
cases, consumers can end up paying higher premiums than
necessary.
AIG noted that, along with state officials, HUD has been
conducting industry-wide examinations on "captive reinsurance
practices by lenders and mortgage insurance companies" for several
years. The consumer watchdog agency, created in 2010 as a new
financial markets cop, has now assumed responsibility from HUD for
violations of the real estate law.
MGIC Investment Corp (MTG) is also facing scrutiny, noting in a
corporate filing last week that in January 2012, the
consumer-protection bureau opened an investigation into practices
by private mortgage insurers. In June, the consumer agency demanded
that MGIC turn over certain documents and information, MGIC
said.
"Various regulators, including the CFPB, state insurance
commissioners and state attorneys general may bring actions seeking
various forms of relief, including civil penalties and injunctions
against violations of RESPA," said MGIC in its filing, adding that
many states prohibit paying for the referral of insurance business.
"While we believe our captive reinsurance arrangements are in
conformity with applicable laws and regulations, it is not possible
to predict the eventual scope, duration or outcome of any such
reviews or investigations nor is it possible to predict their
effect on us or the mortgage insurance industry."
In January, New Jersey-based PHH Corp. (PHH) disclosed that the
consumer-watchdog agency notified it that it had opened an
investigation "to determine whether mortgage insurance premium
ceding practices" comply with the Real Estate Settlement Procedures
Act. PHH said it "believes that it has complied" with the law, but
noted it can't say whether the consumer bureau's probe will result
in the imposition of any penalties and fines against the company or
its subsidiaries.
A consumer bureau spokeswoman declined to comment on the
investigations. "We don't confirm or deny investigations," she said
Sunday.
Write to Maya Jackson Randall at
maya.jackson-randall@dowjones.com