Mortgage Lender PHH Accused of Taking Kickbacks From Insurers -- Update

By Alan Zibel 

WASHINGTON--A federal regulator accused mortgage lender PHH Corp. of collecting illegal kickbacks from certain mortgage insurers, inflating costs for home-loan customers in the process.

The Consumer Financial Protection Bureau on Wednesday claimed the New Jersey-based company referred borrowers to companies with whom it had business relationships. The case will be handled by an administrative law judge, who will hold hearings and make a decision on the charges.

Mortgage insurance is often required when consumers buy houses with down payments of less than 20%. The insurance protects the lender if the borrower defaults. Lenders, rather than the borrowers, generally choose the insurance provider.

The CFPB alleges that PHH over 15 years collected up to 40% of premiums paid by consumers to mortgage insurers, a setup that resulted in "hundreds of millions of dollars in kickbacks." The company was aware the prices its borrowers were being charged for the insurance were higher than those of competitors, according to the regulator.

PHH put pressure on mortgage insurance companies to purchase reinsurance from PHH, according to the regulator. But those fees, rather than transferring risk to help cover unexpected losses, violated federal law because they were kickbacks made in exchange for the referral of business, the CFPB said.

A PHH spokesman said the company's business relationships were legal. "We believe the CFPB's allegations grossly mischaracterize the legitimate business activities of our mortgage reinsurance subsidiary," the spokesman said. He said the insurance unit "assumed significant risks, paid substantial claims and we believe complied with applicable statutory and regulatory requirements."

The CFPB has been stepping up probes of alleged kickbacks in the real-estate industry. Last year, the CFPB reached settlements worth $15.5 million with five mortgage-insurance companies: Genworth Financial Inc., American International Group Inc.'s United Guaranty Unit, Radian Group, MGIC Investment Corp and Republic Mortgage Insurance Corp. The companies didn't admit or deny the allegations but agreed to end such practices.

Write to Alan Zibel at [e-mail]

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