by Brian Mahany and Anthony Dietz
The Consumer Financial Protection Bureau – CFPB for short – was formed less than 2 years ago but has proven itself to have some muscle. Although Congress failed to give the agency the power to toss bad bankers and fraudster in jail, it has proven itself quite adept at investigating fraudulent lending practices. In it’s latest move, the agency fined the four largest private mortgage insurers.
When home buyers can’t put enough money down, bank rules often require private mortgage insurance or “PMI.” There are a handful of companies that provide such insurance, the largest being Radian Guaranty, United Guaranty, Mortgage Guaranty Insurance and Genworth Financial. The government accused the four of paying illegal kickbacks to lenders in order to get their business.
In a typical residential real estate transaction, the home buyer selects a mortgage company. However, if PMI is required, the lender generally picks the private mortgage insurance vendor. Many Many of the largest mortgage lenders have set up elaborate captive reinsurance relationships to receive improper “kickbacks”from the PMI premium. Even though PMI prices are regulated, the consumer loses because there is no incentive amongst the large PMI providers and the largest mortgage lenders to seek lower PMI premiums because it’s a profit center for all involved – analogous to the OPEC cartel where the largest world oil suppliers set the price.
In other words, the home buyer gets “screwed.”
For their role in the scheme, all four companies agreed to stop the kickbacks. In addition, Radian agreed to pay a fine of $3.75 million, United Guaranty a fine of $4.5 million, Mortgage Guaranty Insurance (MGIC) a fine of $2.65 million and Genworth Financial a $4.5 million fine.
In our opinion, that shouldn’t be the end of the inquiry. The banks that took the “kickback” through the captive reinsurance vehicle and thus steered the PMI business should also be prosecuted. A bribe or kickback takes two parties in order to be successful. Accepting a bribe is just as illegal and unethical as offering one. Many of the nation’s biggest lenders have accepted billions in taxpayer monies. Paying kickbacks and violating federal RESPA regulations cannot be tolerated.
Why? Ultimately, RESPA violations and kickbacks usually mean higher costs to consumers and higher default rates. Although the PMI insurers and banks take a piece of that risk, its the American taxpayer who usually gets saddled with the bulk of bad mortgage debt. FHA, VA, Fannie Mae and Freddie Mac all rely on government funds of guarantees when loans go south. In fact, Fannie Mae and Freddie Mac are not filing claims on many of the defaulted loans using PMI because it would have the effect of taking down the banks that have been deemed “too big to fail.
The False Claims Act provides an opportunity for whistleblowers to bring an action in the name of the government to stop fraud. Whistleblowers are entitled to a portion of the money recovered from the people and company committing the fraud. If taxpayers had to pay out billions in claims because certain lenders were writing bad loans, the government is entitled to recoup that money from those lenders. And the whistleblower who brought the action is entitled to receive a large cut of the recovery.
How much? Usually 20 to 25%. On a recovery measured in the tens of millions of dollars, the pay day can be quite high.
Federal law says that false claims act cases must be based on information not found in the public domain. In other words, you can’t bring a FCA case based on this blog post or something you see on the evening news. If you work or worked for or with a lender or private mortgage insurance company, however, you may have the requisite insider knowledge to qualify you for an award.
For more information, contact attorney Brian Mahany at Attorney Anthony Dietz can be reached at or by telephone at (268) 789-5551 (direct). All inquiries are protected by the attorney – client privilege and kept in strict confidence. Our whistleblowers attorneys represent people across the United States. We currently represent the whistleblower in the largest false claims case anywhere in the U.S. against a lender or bank; HUD’s $2.4 billion case against Allied Home Mortgage.
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. Services available in many jurisdictions.
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