WASHINGTON — Federal regulators are conducting an extensive investigation into an alleged mortgage insurance kickback scheme that pushed up costs for homebuyers dating from the mid-1990s.
The Consumer Financial Protection Bureau, in disclosing its first action Thursday, said the investigation revolves around a scheme in which banks and other lenders required private mortgage insurers to seek backup insurance from lender-owned reinsurance companies.
The backup insurance essentially was worthless and amounted to an improper payment to the lender by the mortgage insurer to acquire new customers, consumer bureau officials said.
Such a scheme was made possible, they said, by the general lenders' requirement that buyers with less than a 20 percent down payment take out private mortgage insurance to cover the additional risk of the loan.
The consumer bureau said Thursday that it had settled accusations against four major private insurers, including giant MGIC Investment Corp., that they improperly kicked back money to lenders that steered homebuyer business to them. The four insurers agreed to pay a total of $15.4 million in fines for actions that accelerated during the housing boom.
The bureau added that its ongoing investigation into other mortgage lenders could produce more substantial results.
The agency has been investigating the practice for more than a year, after an earlier federal inquiry resulted in no action. In 2011, American Banker magazine reported that many of the nation's largest banks had received more than $6 billion in kickbacks through the scheme over the course of a decade.
“The mortgage insurance business can be lucrative, and our investigation indicates that lenders sought to leverage their control over the business to capture some of those revenues for themselves,” Richard Cordray, the consumer bureau's director, said Thursday.
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