Consumer Agency Sues Mortgage Lender over Kickbacks

, The National Law Journal

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Consumer Financial Protection Bureau building in Washington, D.C.
Consumer Financial Protection Bureau building in Washington, D.C.

The Consumer Financial Protection Bureau on Wednesday sued mortgage giant PHH Corp. and its affiliates for allegedly collecting "hundreds of millions of dollars" in illegal mortgage insurance kickbacks starting as early as 1995.

In an administrative suit, the agency alleged that consumers ended up paying inflated mortgage insurance premiums because of the scheme. It seeks a civil fine, a permanent injunction and victim restitution.

The publicly traded company, based in New Jersey, closed $55.6 billion in mortgage financing during 2012 and services nearly 1.1 million loans, according to its website. It’s represented by Mitchel Kider, a name partner at Weiner Brodsky Kider in Washington.

“We believe the CFPB’s allegations grossly mischaracterize the legitimate business activities of our mortgage reinsurance subsidiary, Atrium Insurance Corporation,” PHH vice president of corporate communications Dico Akseraylian wrote in an email. “Atrium assumed significant risks, paid substantial claims and we believe complied with applicable statutory and regulatory requirements. … We intend to vigorously defend against the CFPB’s allegations.”

The suit is the latest in a series brought by the consumer agency alleging violations of the Real Estate Settlements Procedures Act. Earlier this month, for example, Fidelity Financial Mortgage Corp. agreed to pay $81,000 for funneling allegedly illegal kickbacks to a bank in exchange for real estate referrals.

In October, the agency sued law firm Borders & Borders in Louisville federal court for allegedly paying kickbacks for real estate settlement referrals through a network of shell companies. That case is pending.

According to the CFPB, investigators found that when PHH originated mortgages, it referred consumers to mortgage insurers with which it was allied. “In exchange for this referral, these insurers purchased ‘reinsurance’ from PHH’s subsidiaries. … PHH took the reinsurance fees as kickbacks.”

The CFPB alleged that PHH received as much as 40 percent of the premiums that consumers paid to mortgage insurers—hundreds of millions of dollars. Also, the agency alleged that PHH charged more money for loans to consumers who did not buy mortgage insurance from one of its kickback partners, and that it steered business to its mortgage insurance partners even when it knew the prices they charged were higher than competitors’ prices.

Since the CFPB opened in 2011, agency lawyers have filed 20 administrative complaints—technically known as a notice of charges. All but the pending case against PHH have settled.

The matter will go before an administrative law judge, who will hold hearings and recommend a finding that may be appealed to the director of the CFPB for a final decision.

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    This is only ONE of at least 100 cases the CFPB could be bringing.

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