A federal appeals court reinstated a lawsuit alleging Countrywide Financial Corp. violated the Real Estate Settlement Procedures Act through a mortgage insurance captive reinsurance kickback scheme.
The suit was filed in 2006. Last year a trial court judge dismissed the case, ruling there was a lack of jurisdiction. But in a ruling last week, Judge Maryanne Trump Barry of the U.S. Court of the Appeals for the Third Circuit said: "What is before us for decision turns on a question of statutory interpretation — does or does not the plain language of RESPA Section 8 indicate that Congress created a private right of action without requiring an overcharge allegation? We conclude that it does."
The ruling also said the "filed rate doctrine" does not apply because the plaintiffs are challenging Countrywide's alleged wrong conduct, not the "reasonableness or propriety of the rate that triggered the conduct."
According to the attorneys for the plaintiffs, who are seeking class-action status, Countrywide assigned each loan which lacked a 20% down payment to one of seven mortgage insurers on a rotating referral-fee basis. The insurers allegedly then were required to reinsure the policy with a Countrywide subsidiary, Balboa Reinsurance Co. The plaintiffs claim that between 2000 and 2006, Balboa collected $892 million in reinsurance premiums and paid no claims.
Barroway Topaz Kessler Meltzer & Check, the law firm that brought the suit, said it has brought similar ones against Washington Mutual Inc. (whose banking operations are now a part of JPMorgan Chase & Co.), GMAC Financial Services LLC and Wells Fargo & Co. that were on hold pending this ruling.
A representative of Bank of America Corp., which now owns Countrywide, said: "We are evaluating the ruling and will respond in court at the appropriate time."