WASHINGTON The Consumer Financial Protection Bureau charges that PHH Corp. ran a mortgage insurance kickback scheme for more than a decade.
The charges filed within the bureau's own administrative proceedings Wednesday accuse New Jersey-based PHH and its subsidiaries of taking illegal kickbacks by inflating the cost of mortgage insurance to consumers from as early as 1995 until 2009.
The CFPB is seeking civil fines and restitutions for harmed consumers for an amount to be determined by an administrative law judge from the CFPB's Office of Administrative Adjudication. The judge's decision can be appealed to the director of the CFPB for a final determination.
The exact charges against the firm were not specified because of the adjudication process, although the CFPB said in a press release that an investigation revealed PHH was originating loans and then referring borrowers to partnering mortgage insurers who then purchased "reinsurance" from subsidiaries of PHH in exchange for the referral. While reinsurance is common and is meant to help spread the risk for mortgage insurers, the CFPB said PHH took the reinsurance fees as kickbacks, resulting in higher insurance premiums for borrowers a violation of the Real Estate Settlement Procedures Act.
The CFPB claims that PHH received up to 40% of the premiums that borrowers paid to mortgage insurers, resulting in hundreds of millions of dollars in kickbacks. Also, the agency alleges PHH overcharged on some loans to borrowers who did not buy insurance from one of its partners and steered business to those partners knowing the prices would be higher than other competitors.
PHH said in an emailed statement that it would "vigorously" fight the CFPB on the allegations, largely pertaining to a reinsurance subsidiary called Atrium Insurance Corp.
"We are extremely disappointed that the CFPB has filed a notice of charges related to our mortgage reinsurance subsidiary's activities. We believe the CFPB's allegations grossly mischaracterize the legitimate business activities of our mortgage reinsurance subsidiary, Atrium," said Dico Akseraylian, a spokesperson for PHH. "Atrium assumed significant risks, paid substantial claims and we believe complied with applicable statutory and regulatory requirements in existence during the period Atrium was engaged in the mortgage reinsurance business. We intend to vigorously defend against the CFPB's allegations."
The CFPB can publish its actual notice of charges 10 days after the company has been served, which would mean Feb. 12 for the PHH case if permitted by the hearing officer.