On November 15, 2013, the CFPB filed a complaint and a proposed consent judgment against Republic Mortgage Insurance Corporation (RMIC). The complaint alleges that RMIC violated section 8 of the Real Estate Settlement Procedures Act (RESPA) by obtaining illegal kickbacks from RMIC’s lenders. The violation allegedly occurred when RMIC entered into captive mortgage reinsurance arrangements with its lenders. The proposed consent judgment would require RMIC to pay $100,000 in penalties; to end its practice of entering into captive mortgage reinsurance arrangements; and to be subject to monitoring by the CFPB.
The action against RMIC comes in the wake of four similar CFPB actions filed earlier in the year. In those actions, the CFPB alleged similar violations of RESPA against Genworth Mortgage Insurance Corporation, United Guaranty Corporation, Radian Guaranty Inc., and Mortgage Guaranty Insurance Corporation. The penalties in the four actions totaled $15.4 million; the consent judgments otherwise sought the same remedies.
Reinsurance is insurance purchased by an insurance company that covers the insurance companies risk of loss. “Captive reinsurance” occurs when a mortgage lender’s subsidiary provides reinsurance to the mortgage insurer. The reinsurance is “captive” because the mortgage lender not only lends the money but also provides the reinsurance through its subsidiary.
For years, mortgage insurance companies ceded a portion of its premiums—and part of the risk—to reinsurance companies that were affiliated with the mortgage lender. The CFPB’s actions both against RMIC last week and against the four other mortgage companies earlier in the year are noteworthy in that the actions demonstrate the CFPB’s intent to end this long-time practice.