By Alan Zibel
WASHINGTON--A federal regulator accused mortgage lender PHH
Corp. of collecting illegal kickbacks from certain mortgage
insurers, inflating costs for home-loan customers in the
process.
The Consumer Financial Protection Bureau on Wednesday claimed
the New Jersey-based company referred borrowers to companies with
whom it had business relationships. The case will be handled by an
administrative law judge, who will hold hearings and make a
decision on the charges.
Mortgage insurance is often required when consumers buy houses
with down payments of less than 20%. The insurance protects the
lender if the borrower defaults. Lenders, rather than the
borrowers, generally choose the insurance provider.
The CFPB alleges that PHH over 15 years collected up to 40% of
premiums paid by consumers to mortgage insurers, a setup that
resulted in "hundreds of millions of dollars in kickbacks." The
company was aware the prices its borrowers were being charged for
the insurance were higher than those of competitors, according to
the regulator.
PHH put pressure on mortgage insurance companies to purchase
reinsurance from PHH, according to the regulator. But those fees,
rather than transferring risk to help cover unexpected losses,
violated federal law because they were kickbacks made in exchange
for the referral of business, the CFPB said.
A PHH spokesman said the company's business relationships were
legal. "We believe the CFPB's allegations grossly mischaracterize
the legitimate business activities of our mortgage reinsurance
subsidiary," the spokesman said. He said the insurance unit
"assumed significant risks, paid substantial claims and we believe
complied with applicable statutory and regulatory
requirements."
The CFPB has been stepping up probes of alleged kickbacks in the
real-estate industry. Last year, the CFPB reached settlements worth
$15.5 million with five mortgage-insurance companies: Genworth
Financial Inc., American International Group Inc.'s United Guaranty
Unit, Radian Group, MGIC Investment Corp and Republic Mortgage
Insurance Corp. The companies didn't admit or deny the allegations
but agreed to end such practices.
Write to Alan Zibel at alan.zibel@wsj.com
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