The Consumer Financial Protection Bureau (“CFPB”) is going after a lender and its affiliates for what it calls a 15 year kickback “scheme.”

On January 29, 2014, the CFPB initiated administrative proceedings against PHH Corporation and its affiliates. CFPB alleges that when PHH originated mortgage loans, it referred its customers to certain of its insurance partners for mortgage insurance, which is typically required when a loan exceeds 80% of the home’s appraised value. The insurance partners, in turn, purchased reinsurance from PHH’s affiliates.

CFPB alleges that PHH and its affiliates:

  • Created a system where it received up to 40% of the premiums that consumers paid to mortgage insurers through kickbacks;
  • Charged more for loans to consumers who did not buy mortgage insurance through its preferred partners;
  • Pressured mortgage insurers to purchase its reinsurance with the understanding or agreement that the insurers would then receive borrower referrals from PHH.

CFPB alleges that this “scheme” violated the Real Estate Settlement Procedures Act (“RESPA”) and the CFPB seeks a civil fine, an injunction to prevent future violations, and victim restitution from PHH and its residential mortgage subsidiaries. The case will be tried by an Administrate Law Judge.