The CFPB announced the settlement of enforcement actions brought in federal district court in Florida against four national mortgage insurers involving allegations that the insurers paid kickbacks to mortgage lenders in violation of Section 8 of the Real Estate Settlement Procedures Act.
The alleged kickbacks were paid through captive reinsurance arrangements in which the mortgage insurers, after insuring mortgage loans made by a lender, purchased reinsurance from the lender’s affiliate or subsidiary. According to the CFPB’s press release, the reinsurance purchases represented kickbacks to the mortgage lenders because the reinsurance was essentially worthless and designed to make a profit for the lenders. The CFPB claimed that in exchange for the kickbacks, the mortgage insurers received referrals of business from the mortgage lenders. The mortgage insurers specifically do not admit or deny any of the allegations set forth in the CFPB’s complaints, and do not make any evidentiary admissions of liability for the specific practices alleged in the complaints.
The proposed consent decrees (which are linked to the CFPB’s press release) (1) prohibit the mortgage insurers from entering into any new captive mortgage reinsurance arrangements with affiliates of mortgage lenders, and from obtaining captive reinsurance on any new mortgages, for a period of ten years, (2) require the insurers to pay the CFPB a total of $15.4 million in penalties, and (3) impose compliance monitoring, compliance reporting and recordkeeping requirements.
The consent orders include a provision requiring the mortgage insurers to respond on an expedited basis to any Civil Investigative Demand (“CID”) or subpoena issued in any CFPB investigation, enforcement action, or civil action “related to or associated with the transactions or the occurrences that are the subject of the [CFPB's complaint].” HUD, in various prior RESPA Section 8 enforcement actions it brought, would settle with one party involved in an alleged kickback arrangement, and use information obtained from that party in proceeding against the other party or parties to the arrangement. The CID provision in the consent orders suggests that the CFPB may be planning to take a similar approach, and may seek to obtain further information from the mortgage insurers in connection with the investigation of mortgage lenders involved in the captive reinsurance arrangements.
The consent orders represent the first consent orders executed by the CFPB since the D.C. Circuit’s decision in Noel Canning v. NLRB, which held that President Obama’s recess appointments to the NLRB were unconstitutional. It appears the four mortgage insurers were willing to take the risk that the consent orders would continue to bind the CFPB even if Director Cordray’s recess appointment is also found to be invalid.