Bank of America Corp. must face claims by homeowners that it took kickbacks from private insurers, a judge ruled.
U.S. District Judge Berle Schiller in Philadelphia denied the bank's request to toss the lawsuit because the statute of limitations had expired on the claims. Homeowners who sued should have the opportunity to develop their argument that the claims should be allowed because the bank intentionally concealed its behavior, Schiller said in a ruling yesterday.
"Plaintiffs' allegations that defendants dressed up an illegal scheme to appear as a legitimate transaction is sufficient to deny defendants' motion to dismiss," Schiller said.
Three Pennsylvania homeowners sued Bank of America last year claiming the bank's pay-to-play reinsurance scheme cost borrowers $284.7 million between 2004 and the end of 2011. That's the amount the bank allegedly collected from private mortgage insurers as its share of insurance premiums for referring borrowers, according to the complaint.
The homeowners, who obtained mortgage loans from the bank in 2005 and 2007, also named private insurers Radian Guaranty Inc., a unit of Philadelphia-based Radian Group Inc.; Richmond, Virginia-based Genworth Financial Inc.'s Genworth Mortgage Insurance Corp.; and United Guaranty Residential Insurance Co., a subsidiary of New York-based American International Group Inc. in their complaint. They sued seeking to represent all borrowers who obtained residential mortgage loans from Bank of America since Jan. 1, 2004.
Schiller also denied the insurers' requests to dismiss the case while acknowledging that they raised "legitimate" arguments about the timeliness of the claims and that homeowners failed to exercise due diligence in discovering those claims.
Both sides are allowed to conduct limited fact-finding into the limitations issue "before the parties pour significant time and resources into the merits of the plaintiffs' claims," Schiller wrote.
Larry Dirita, a Bank of America spokesman, and Alfred King, a spokesman for Genworth, had no immediate comment on Schiller's ruling. Emily Riley, a Radian spokeswoman, didn't immediately return a phone call seeking comment. Liz Urquhart, a spokeswoman for United, wasn't immediately available for comment.
The Consumer Financial Protection Bureau announced April 4 that Radian, Genworth, United and another insurer agreed to pay more than $15 million in penalties to settle claims they paid illegal kickbacks to lenders in exchange for business. The settlement ended a five-year federal investigation, the agency said.
Lenders collected revenue from mortgage guarantors through captive reinsurance agreements and allowed them to get funds from premiums without taking on risks, according to the CFPB. The practice violates the Real Estate Settlement Procedures Act, the bureau said.
Homebuyers who take out mortgages with less than 20 percent down payments are typically required to purchase private mortgage insurance at closing. The premium paid by the borrower protects the lender in the event of a default.
The case is Riddle v. Bank of America Corp., 12-cv-01740, U.S. District Court Eastern District of Pennsylvania (Philadelphia).