The CFPB (Bureau) recently issued subpoenas to major financial institutions and insurance companies as part of an ongoing investigation into captive mortgage reinsurance deals. Those receiving subpoenas have included American International Group (AIG), MGIC Investment Corp., Genworth Financial, Radian Group Inc., and PHH Corp. The Bureau is probing whether insurers paid banks to win a slice of their mortgage insurance business in violation of the Real Estate Settlement Procedures Act (RESPA).

The investigation spawned from borrowers’ accusations that mortgage insurers have paid millions of dollars in kickbacks to banks in exchange for the banks recommending that borrowers purchase insurance from those same mortgage insurers. Banks often require mortgagors who cannot put down at least a 20% down payment on a property to purchase private mortgage insurance. Those banks typically recommend certain insurers to borrowers, and the borrowers frequently choose one of the recommended insurers. Specifically, the allegations involve the lender’s steering of borrowers to preferred mortgage insurers, who, in turn, share their premiums with the lender by buying reinsurance at inflated rates from a company owned by the lender. Payments for the steering of settlement service business is a violation of RESPA.

The U.S. Department of Housing and Urban Development began this investigation, but recently handed over responsibility to the Bureau for investigating RESPA violations. Most of the subpoena recipients have publicly stated that they intend to fully cooperate with the investigation.