By Alan Zibel
WASHINGTON--A U.S. regulator on Thursday fined the main
companies in the U.S. mortgage insurance business a combined $15.4
million in penalties, accusing them of paying illegal kickbacks to
curry favor with lenders.
The companies agreed to end a practice of paying banks fees to
win business, which the regulator said was in violation of federal
law that prohibits steering in real estate transactions. Two of the
companies said they had ended such practices several years ago.
The Consumer Financial Protection Bureau's acted against
Genworth Financial Inc. (GNW), American International Group Inc.'s
(AIG) United Guaranty unit, Radian Group (RDN) and MGIC Investment
Corp. (MTG). These companies sell mortgage insurance, which is
often required when consumers buy houses with down payments smaller
than 20%. The insurance protects the lender if the borrower
defaults.
Starting in the 1990s many mortgage lenders set up their own
"reinsurance" units that took on a portion of the lending risk in
exchange for a portion of the insurance premiums. CFPB officials
said those arrangements amounted to illegal kickbacks.
"We believe these mortgage insurance companies funneled millions
of dollars to mortgage lenders for well over a decade," CFPB
Director Richard Cordray said in a statement. "The orders announced
today put an end to these types of arrangements."
The companies, in reaching consent orders with the CFPB, did not
admit or deny the regulator's allegations.
"We are pleased to put this behind us," Teresa Bryce Bazemore,
president of Radian Guaranty, said in a statement. While the
relationships complied with federal law "and caused no harm to
consumers, this settlement was an opportunity to eliminate
distractions at an acceptable cost," Ms. Bazemore said.
In a statement, a spokesman for AIG said "Along with most other
major mortgage insurers, United Guaranty has agreed to resolve a
potential challenge by the Consumer Financial Protection Bureau
(CFPB) to industry-wide practices involving captive reinsurance
which were largely discontinued in 2008-2009. United Guaranty
believes these practices complied with the law and were fair to
consumers, but settled the matter to avoid the distraction and
expense of protracted litigation."
Genworth Financial and MGIC Investment Corp. couldn't
immediately be reached for comment.
-Andrew R. Johnson contributed to this article.