When prospective home buyers cannot make a down payment at a certain level (usually twenty percent of the purchase price), lenders often require them to purchase private mortgage insurance, to cover the risk of default. Typically, the lender places the insurance on behalf of the borrower. The premium is charged to the borrower along with other escrow items, such as property tax and homeowners insurance premiums. This practice has come under attack in suits in recent years – often class action suits – alleging that private mortgage insurers and lenders (and/or their captive reinsurers) have unlawfully entered into reinsurance arrangements between the primary insurers that issue the insurance, and captive reinsurers of the lender, that amount to “kickbacks” to the lenders violating the Real Estate Settlement Procedures Act, among other causes of action.
In the long-running Munoz v. PHH Corp. case pending in the Eastern District of California, a federal magistrate recommended a partial grant of class certification, which would certify a class of “all persons who obtained residential mortgage loans originated and/or acquired by PHH and/or its affiliates on or after June 2, 2007, and, in connection therewith, purchased private mortgage insurance and whose loans were included with PHH’s captive mortgage reinsurance arrangements.” , Case No. 08-cv-0759 (USDC E.D.Cal. May 15, 2013).