Mortgage Guaranty Insurance Corporation
Documents in this case
Case summary
APR 04, 2013
The CFPB filed complaints and proposed consent orders against four national mortgage insurance companies in order to stop improper kickbacks paid by mortgage insurers to mortgage lenders in exchange for business, which have been prevalent for more than 10 years. The proposed orders require the four mortgage insurers to pay more than $15 million in penalties to the CFPB.
Order ()
PDF of this document (19 pages)
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Case 1:13-cv-21187-DLG Document5 Entered on FLSD Docket 04/05/2013 Page 1 of 19
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA CLOSED MIAMI DIVISION CASE NO.: 1:13-cv-21187-GRAHAM/GOODMAN CIVIL CONSUMER FINANCIAL CASE
PROTECTION BUREAU, Plaintiff, Vv.
MORTGAGE GUARANTY INSURANCE CORPORATION,
Defendant.
™
FINAL CONSENT JUDGMENT AND ORDER
Plaintiff, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”), has filed a Complaint for Permanent Injunction and Other Relief (the “Complaint”), pursuant to Section 1054 of the Consumer Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. § 5564, and Sections 8 and 16 of the Real Estate Settlement
Procedures Act (“RESPA”), 12 U.S.C. §§ 2607, 2614.
The Complaint alleges that defendant Mortgage Guaranty Insurance Corporation (“MGIC” or “Defendant”) has violated Section 8 of the Real Estate Settlement Procedures Act
(“RESPA”), 12 U.S.C. § 2607.
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The parties, by and through their respective counsel, have agreed to entry of this Proposed Final Consent Judgment and Order t%lorder'l by this Court, without trial or adjudication of any issue of fact or law, to settle and resolve all matters of dispute arising from the conduct alleged in the Complaint. Defendant waives all rights to seek judicial review or otherwise challenge or contest the validity of this Order, and Defendant waives any right that may arise under the Equal Access to Justice Act, 28 U .S.C. 5 2412.
Defendant has waived service of the Summons and Complaint.
The parties having requested the Court to enter this Order, it is therefore ORDERED, ADJUDGED, and DECREED as follows: FINDINGS This Court has jurisdiction of the subject matter of this case an; has jurisdiction over Defendant. Venue in this District is proper.
2.
The Complaint states a claim upon which relief may be granted under Section 8 of RESPA , 12 U .S.C. 5 2607, and Sections 1054 and 1055 of the CFPA , 12 U .S.C. 55 5564 and 5565. The Bureau and MGIC stipulate and agree to entry of this Order, without trial or final adjudication of any issue of Case 1:13-cv-21187-DLG Document 5 Entered on FLSD Docket 04/05/2013 Page 2 of 19
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fact or law, to settle and resolve all matters in dispute arising from the conduct of the Defendant alleged in the Complaint to the date of entry of this Order. This settlement does not settle or resolve any matters not alleged in the Complaint.
MGIC has consented to entry of this Order without admitting or denying any of the allegations set forth in the Complaint.
4.
The parties intend that this Order a) not be an adjudication of any fact or legal conclusion, and b) not have any preclusive effect in any other action or proceeding . By agreeing to the entry of this Order, MGIC is not making any evidentiary admissions of liability for the specific practices alleged in the Complaint.
The relief provided in this Order is appropriate and available pursuant to Sections 1054 and 1055 of the CFPA , 12 U .S.C. 55 5564 and 5565, and Sections 8 and 16 of RESPA , 12 U .S.C. 55 2607 and 2614.
Entry of this Order is in the public interest. DEFINITIONS For the purpose of this Order:
A .
''Captive Mortgage Reinsurance Arrangement'' shall refer to any contract, agreement, or other business arrangement to Case 1:13-cv-21187-DLG Document 5 Entered on FLSD Docket 04/05/2013 Page 3 of 19
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which MGIC is or was a party, pursuant to which a Lender or Lender affiliate reinsures any portion of mortgage insurance provided by MGIC on any federally related mortgage loan , as defined by RESPA and its implementing regulations, in exchange for a percentage of premiums paid for that mortgage insurance coverage, and any actions necessitated by, attendant or ancillary to the execution of such an agreement and its provisions, including but not limited to the referral of borrowers to MGIC in connection with loans originated by Lenders, the creation or operation of one or more Lender affiliates to provide reinsurance services to MGIC or other mortgage insurance providers, (3) the receipt by or through such Lender affiliate or affiliates of some portion of the premiums paid by borrowers to MGIC or other forms of payment in connection with such loans, and (4) any other services provided pursuant to such an agreement.
B .
The ''Company'' or ''MGIC'' means Mortgage Guaranty Insurance Corporation and its successors and assigns, by whatever names they might be known.
C.
MCaptive Trust'' means any trust used in connection with a Captive Mortgage Reinsurance Arrangement to which MGIC is a party, including any accounts, funds, or property held in the name of such trust .
Case 1:13-cv-21187-DLG Document 5 Entered on FLSD Docket 04/05/2013 Page 4 of 19
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nLendertsl'' means any and al1 entities that offer or provide residential mortgage loans. ''Captive Reinsurer'' means any Lender or affiliate thereof that reinsures mortgage insurance pursuant to a Captive D .
Mortgage Reinsurance Arrangement. ORDER 1 .
PROHIBITED CONDUCT IT IS THEREFORE ORDERED THAT that officers, agents, representatives, persons or entities in active concert MGIC, its affiliates, and employees, and a11 other or participation with it who receive actual notice of this Order by personal service or otherwise, directly or through any corporation, subsidiary, division, or other device, are hereby permanently restrained and enjoined from:
A .
Except as otherwise expressly provided herein, participating in any Captive Mortgage Reinsurance Arrangement (nArrangement'') for a period of ten years from the date of entry of this Order, by :
1.
Entering into any such new Arrangement; 2.
Revising, or agreeing to revise, including by failing to object upon being given notice, any existing Arrangement without the prior written consent of the Bureau , except that such consent shall not be Case 1:13-cv-21187-DLG Document 5 Entered on FLSD Docket 04/05/2013 Page 5 of 19
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necessary in the case of purely ministerial or clerical changes, provided that the Bureau is given a copy of all documents reflecting any such changes no fewer than thirty (30) days before they take effect; or Obtaining reinsurance from a Captive Reinsurer on any new mortgage transactions after the date of entry of this Order.
Nothing in this Order shall be construed, however, as preventing the ceding of premiums on policies originated as of, and subject to Arrangements already in existence as of, the date of entry of this Order.
B.
Giving any thing of value to any person pursuant to an agreement that mortgage such person to MGIC, in violation of Section 8 of RESPA, 12 U .S.C. 5 2607, and its implementing regulations. Failing to comply with any provision of RESPA , 12 insurance business shall be referred by U .S.C.
2601 e: segw and its implementing regulations. IT IS FURTHER ORDERED THAT MGIC, its affiliates, officers, agents, servants, representatives, and employees, and all persons in active concert or participation with it who receive actual notice of this Order by personal service or otherwise, will :
Case 1:13-cv-21187-DLG Document 5 Entered on FLSD Docket 04/05/2013 Page 6 of 19
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D .
Relinquish to the CFPB any and al1 rights possessed by MGIC to receive, claim, or utilize any funds held in any ) Captive Trust pursuant to any existing Captive Mortgage Reinsurance Arrangement, except for the purpose of reimbursing MGIC for reinsurance claims that have accrued or will accrue under the terms of any Captive Mortgage Reinsurance Arrangement; for the purpose of obtaining reinsurance credit against loss reserves; or for the purpose of paying MGIC ceding commissions due under any such Arrangement in force as of the date of entry of this Order.
IT IS FURTHER ORDERED THAT MGIC, its officers, agents, y servants, and employees, hereby waive any and all claims or .
è i t enforcement of or monitoring for defenses of MGIC to res s ):
compliance with this Order on the ground that the CFPB lacks t authority to undertake such enforcement or monitoring. II .
CIVIL MONEY PENALTY tE.! IT IS FURTHER ORDERED that by reason of the alleged L violations of 1aw or regulations as set forth in the Complaint, , ' l d after taking into account the appropriateness of the penalty an ). .
::j with respect to the financial resources and good faith of MGIC, ( è the gravity of the conduct by MGIC, the severity of the risks to .:
iè and losses of consumers, the history of previous conduct by ? .) ( MGIC, and such other matters as justice may require, pursuant to ' r .) -jE è) Case 1:13-cv-21187-DLG Document 5 Entered on FLSD Docket 04/05/2013 Page 7 of 19
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section 1055(c) of the CFPA, 12 U.S.C. 5 5565(c): MGIC shall pay a total civil money penalty of $2,650,000 to the CFPB within thirty (30) days after the date of entry of this Order, in accordance with section l0l7(d) of the CFPA, 12 U.S.C.
5497(d), as directed by the CFPB.
MGIC shall pay such civil q money penalty itself, and is prohibited from seeking or C ting indemnification from such payment from any third accep party .
) '
111. NOTIFICATION AND REPORTING REQUIREMENTS A .
CIVIL INVESTIGATIVE DEMAHDS IT IS FURTHER ORDERED that, in connection with any Civil .
.y Investigative Demand (UCID'') or subpoena issued in any ;
. )2) investigation, enforcement action, or civil action of the Bureau $ rezated to or associated with the transactions or the ') occurrences that are the subject of the Complaint, MGIC shall i' ) respond on an expedited basis to any such CID or subpoena. j : )' B . DATA ' .:' .:
r IT IS FURTHER ORDERED that, to facilitate consumer l redress, MGIC shall provide the Bureau or its designated agent, ) .i.71 ithin thirty (30) calendar days af ter receiving a written w ).
.tl request by the Bureau or its designated agent, with all .c)9 information reasonably required to administer payment of any .C funds pursuant to Section l0l7(d) of the CFPA. MGIC shall # . :
:
( i.) ( :
) Case 1:13-cv-21187-DLG Document 5 Entered on FLSD Docket 04/05/2013 Page 8 of 19
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provide a complete electronically stored data set in a compatible format (as reasonably determined by the Bureau or ( :
its agent).
)) C . COM PLIANCE MONITORING IT IS FURTHER ORDERED that, for the purposes of monitoring '
compliance with this Order:
(
l Within thirty (30) days of receipt of written notice
* i 1@'î from the CFPB, MGIC shall submit written reports, (.
to under penalty of perjury; produce documents ) SWorn ( ! for inspection and copying in the form and format by i
which they are maintained by MGIC; and make available è (-) i f MGIC to appear for a designated representat ve o (ry deposition .
E .1y 2. In addition, the CFPB is authorized to use any or al1 :
iè lawrul means to monitor compliance with this order, ).
) including, but not limited to, obtaining documents, L)..
ë information, answers to questions, or sworn testimony ..)! ' .1( from any person without further leave of the Court, )) and using any of the procedures available to the CFPB ' .k.) pursuant to the provisions of Section 1052 of the ) CFPA ..
* .;
3. MGIC shall permit the CFPB to interview any employer, i ltant independent contractor, representative, consu , lq .f :
.) j' ( (' Case 1:13-cv-21187-DLG Document 5 Entered on FLSD Docket 04/05/2013 Page 9 of 19
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agent, or employee who has agreed to such an interview, relating in any way to any conduct subject to this Order.
The interview shall occur at a mutually agreeable time and place and the person interviewed may have counsel present upon their request .
) D . COMPLIANCE REPORTING L l IT IS FURTHER ORDERED that for the purpose of assessing :
j
MGIC'S compliance with this Order: 1. For a period of four (4) years from the date of entry of
this Order, MGIC shall notify the CFPB of any changes in )rp( corporate structure that may affect compliance ) )'( obligations arising under this Order, including but not ,.!@ ' t.) limited to a dissolution, assignment, sale, merger, or )' other action that would result in the emergence of a )
successor entity;
the creation or dissolution of a @ .)? subsidiary, parent, or affiliate that engages in any acts L:
'j. j:
or practices subject to this Order, expressly to include, E t without limitation, the sale of private mortgage . .ëyt insurance; the filing of a bankruptcy petition; or a ' ) ( . ' q .
change in the corporate name or address, at least thirty (30) days prior to such change, provided tAat, with t:
è d change in the corporation about respect to any propose ( é E) lè () 'y tq . ( Case 1:13-cv-21187-DLG Document 5 Entered on FLSD Docket 04/05/2013 Page 10 of 19
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which MGIC learns less than thirty (30) days prior to the date such action is to take place, MGIC shall notify the CFPB as soon as is practicable after obtaining such knowledge.
2. One-hundred eighty this Qrder and annually on this date until such time as each and every one of the Captive Trusts are terminated, ended, or otherwise closed, MGIC shall provide a written report to the CFPB, sworn to under penalty of perjury, setting forth in detail the manner and form in which it has complied and is complying with this Order since entry of this Order, or during the most recent annual period, as appropriate .
This report shall include, but not be limited to :
a) The balance of all funds held in any Captive Trust; b) The amount of all payments, funds, or other (180) days after the date of entry of disbursements received by MGIC during the preceding year (or, in the case of the first such report, six months) pursuant to any existing Captive Mortgage Reinsurance Arrangement for the purpose of reimbursement for reinsurance claims; c) The amount of a1l payments, funds, or other disbursements that MGIC projects or anticipates Case 1:13-cv-21187-DLG Document 5 Entered on FLSD Docket 04/05/2013 Page 11 of 19
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may claim within the subsequent year pursuant to any existing Captive Mortgage Reinsurance Arrangement for the purpose of reimbursement for reinsurance claims;
d) Confirmation that MGIC has exercised for the benefit of the CFPB any and all rights, if any, previously possessed by it under any Captive Mortgage Reinsurance Arrangement to obtain any other funds held within any Captive Trust, other than funds held within a Captive Trust for any purpose permitted in Section I.D above, notified al1 parties to the Captive Mortgage Reinsurance Arrangement that relinquished any continuing rights over such funds has to the CFPB, and the amount of any such funds obtained and delivered to the CFPB; e) The amount of al1 payments, funds, or other disbursement paid or ceded by MGIC pursuant to any existing Captive Mortgage Reinsurance Arrangement; f) The amount of a11 payments, funds, or other disbursements that MGIC projects or anticipates it may pay or cede within the subsequent year pursuant to any existing Captive Mortgage Reinsurance Arrangement;
Case 1:13-cv-21187-DLG Document 5 Entered on FLSD Docket 04/05/2013 Page 12 of 19
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g) Any changes required to be reported under subparagraph 1 of this Section; and h) A copy of each acknowledgement receipt of this Order, obtained pursuant to Section V of this Order. 3. For a period of ten (10) years from the date of entry of this Order, beginning one year from the date of entry of this Order, and each year thereafter, MGIC shall certify in writing to the CFPB that, since the date of entry of this Order, MGIC has complied with subsection A of Section I of this Order.
For the purposes of this Order, MGIC shall, unless otherwise directed by the CFPB'S authorized representatives, mail all written notification to the CFPB via Federal Express, to :
Consumer Financial Protection Bureau ATTENTION: Enforcement Director 1700 G Street NW Washington, D .C. 20552 RE: CFPB <. MGIC. File No. 2011-0024-02 Case 1:13-cv-21187-DLG Document 5 Entered on FLSD Docket 04/05/2013 Page 13 of 19
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IV .
RECORD -KEEPING PROVISION IT IS FURTHER ORDERED that, for a period of six (6) years from the date of entry of this Order, MGIC and its successors and assigns shall retain all records and documents necessary to demonstrate full compliance with this Order, including but not limited to:
All contracts reflecting reinsurance policies or arrangements sought or obtained by MGIC following the date of this Order, or otherwise in force as of the date of this Order .
A.
B.
All copies of acknowledgements of receipt of this Order required by Section V , and the CFPB pursuant to Section 111.
All customer files, customer complaints, on accounts including Captive Mortgage reports submitted to including any records of Reinsurance Arrangements.
All records of any reinsurance claims pursued by the Company under a Captive Mortgage Reinsurance Arrangement, the disposition of those claims, and a complete accounting of a1l funds received by MGIC in connection with those claims.
V .
DISTRIBUTION OF ORDER Case 1:13-cv-21187-DLG Document 5 Entered on FLSD Docket 04/05/2013 Page 14 of 19
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IT IS FURTHER ORDERED that, during the ten (10) years after entry of this Order, MGIC shall deliver a copy of this Order to a11 principals, officers, and directors. MGIC must also deliver copies of this Order to all of its employees, agents, and representatives who had responsibilities or business duties relating to Captive Mortgage Reinsurance Arrangements. MGIC must also deliver copies of this Order to all of its employees, agents, or representatives who are engaged in or otherwise responsible for compliance with this Order. MGIC shall deliver this Order to current personnel within thirty (30) days after the date of service of this Order, and to new personnel or personnel whose responsibilities have changed to include duties covered by this Order, within thirty (30) days after the person assumes such position or responsibilities. MGIC must secure a t signed and dated statement acknowledging receipt of this Order within thirty (30) days of delivery from al1 persons receiving a copy of this Order under this Section.
vz .
xcxxowLaocMExT oF RECEIPT oF oRosR
zT Is FCRTHER ORDERED that MGIC, within thirty (30) days of @ receipt of this Order as entered by the Court, must submit to i .
the CFPB a duly sworn statement acknowledging receipt of this t Order .
( k1.
. ( ( J' 1.
)' . ( è ,:
Case 1:13-cv-21187-DLG Document 5 Entered on FLSD Docket 04/05/2013 Page 15 of 19
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V II. RELEASE The CFPB releases and discharges MGIC, and its affiliates, directors, officers, agents, servants and employees from all potential liability that has been or might have been asserted by the CFPB based on the captive mortgage reinsurance practices described in the Complaint, to the extent such practices occurred prior to the entry of this Order . Notwithstanding the foregoing, the practices alleged in the Complaint may be utilized by the CFPB in future enforcement actions against MGIC and its affiliates, including, without limitation, to establish a pattern or practice of violations or the continuation of a pattern or practice of violations, or to calculate the amount of any penalty.
This release shall not preclude or affect any right of the CFPB to determine and ensure compliance with the terms and provisions of this Order, or to seek penalties for any violations thereof.
VIII.
RETENTION OF JURISDICTION IT IS FURTHER ORDERED that this Court shall retain jurisdiction of this matter for purposes of construction, modification, and enforcement of this Order. IX .
FINAL JUDGMENT AHn ORDER The parties hereby consent to the terms and conditions of this Order as set forth above and consent to the entry thereof. Case 1:13-cv-21187-DLG Document 5 Entered on FLSD Docket 04/05/2013 Page 16 of 19
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DONE ANn ORDERED in Chambers day of April, 2013.
+ at Miami , Florida, this / j ' N DONA D L . G UNITED STATES DISTRICT JUDGE Conformed Copies to:
All Parties of Record Case 1:13-cv-21187-DLG Document 5 Entered on FLSD Docket 04/05/2013 Page 17 of 19
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Case 1:13-cv-21187-DLG Document5 Entered on FLSD Docket 04/05/2013 Page 18 of 19
THE UNDERSIGNED HEREBY CONSENT TO ENTRY OF THIS ORDER
On behalf of Plaintiff Consumer Financial Protection Bureau
Kent Markus Enforcement Director
Donald Gordon (Special Florida Bar Number #A5501854)
Kimberly J. Ravener Navid Vazire
Crystal Sumner Attorneys for Plaintiff
Consumer Financial Protection Bureau 1700 G Street, NW
Washington, DC 20552 (202)435-7357
DATED April 4, 2013.
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THE IJNDERSIGNED HEREBY CONSENT T0 ENTRY 0F THIS ORDER On behafofDefendant MGIC Patrick Sinks President and Chiefoperating O//ccz. M ortgage Guaranty Insurance Corporation DATED :% f'oh $ q , 2:13.
Case 1:13-cv-21187-DLG Document 5 Entered on FLSD Docket 04/05/2013 Page 19 of 19
Complaint ()
PDF of this document (10 pages)
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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA
CASE NO.: _________
CONSUMER FINANCIAL PROTECTION BUREAU,
Plaintiff,
v.
MORTGAGE GUARANTY INSURANCE CORPORATION,
Defendant.
/
COMPLAINT FOR PERMANENT INJUNCTION AND OTHER RELIEF
Plaintiff, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”), alleges: 1.
The Bureau brings this action under Section 1054 of the Consumer Financial Protection Act of 2010, Pub. L. No. 111-203, Title X, § 1054, 124 Stat. 1376, 2028-29 (2010) (“CFPA”), codified at 12 U.S.C. § 5564, and Sections 8 and 16 of the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. §§ 2607 and 2614, to obtain civil money penalties and permanent injunctive relief, for Defendant’s acts or practices in violation of Section 8 of RESPA, 12 U.S.C. § 2607.
2.
Section 8 of RESPA prohibits: (1) the payment and acceptance of any fee, kickback, or thing of value in exchange for referring a consumer to a real estate settlement service provider, and (2) the giving or accepting of any portion, split, or percentage of a charge for a real estate settlement service other than for services actually performed (that is, unearned fees).
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3.
This enforcement action is brought to remedy the unlawful acts and practices by Defendant of entering into agreements pursuant to which illegal kickback payments or unearned fees, disguised as reinsurance premiums, were paid by Defendant to the captive reinsurance affiliates (“captive reinsurers”) of entities offering or providing residential mortgage loans (“lenders”) in exchange for the referral of private mortgage insurance business from the lenders. JURISDICTION AND VENUE 4.
This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1331, 1337(a), 1345, and 1355 and 12 U.S.C. §§ 2614 and 5565(a).
5.
Venue is proper in this district under 28 U.S.C. § 1391, and 12 U.S.C. § 2614, 12 U.S.C. § 5564(f).
PARTIES 6.
The CFPB is an independent agency of the United States Government created by statute. 12 U.S.C. § 5481 et seq. Section 1061(b)(7) of the CFPA, 12 U.S.C. § 5581(b)(7), transfers to the Bureau all consumer protection functions originally granted to the Secretary of the Department of Housing and Urban Development (“HUD”) relating to the enforcement of RESPA, and Section 1098(7) of the CFPA amended Section 8(d)(4) of RESPA to authorize the Bureau to bring actions to enjoin violations of Section 8. 7.
The CFPB is authorized to initiate federal district court proceedings, by its own attorneys, to enjoin violations of RESPA and to secure such legal and equitable relief as may be appropriate in each case. 12 U.S.C. § 2607(d)(4); 12 U.S.C. §§ 5564(a) and 5565. 8.
The CFPB is also authorized to collect civil money penalties, as set forth in 12 U.S.C. §§ 5565(a) and (c), and to recover its costs in connection with prosecuting an action, 12 U.S.C. § 5565(b).
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9.
Defendant Mortgage Guaranty Insurance Corporation. (“MGIC”) is a Wisconsin corporation with its principal place of business in Milwaukee, Wisconsin. MGIC transacts or has transacted business in this district and throughout the United States. At times material to this Complaint, MGIC engaged in the business of selling private mortgage insurance and ceded premiums to lenders in exchange for purported “reinsurance.” FACTS The Private Mortgage Insurance Industry 10.
Private mortgage insurance is issued by a mortgage insurance provider. Typically, the lender selects and designates the mortgage insurance provider that will provide the mortgage insurance at the time of the loan origination. As a result, consumers usually have no effective choice in this referral.
11.
In the event of a borrower default, the mortgage insurance policy covers a specified percentage of losses the lender may face in connection with a foreclosure of the loan. 12.
Prior to the 2008 financial crisis, mortgage insurance was a very profitable business for Defendant. As a result, Defendant highly valued its selection by a lender to provide mortgage insurance for loan transactions originated by the lender. 13.
Beginning in the mid-1990’s, many lenders established their own wholly-owned subsidiaries to serve as captive reinsurers providing purported reinsurance to Defendant and others. These captive reinsurers purported to provide a layer of reinsurance coverage primarily or exclusively for the mortgage insurance on the affiliated lender’s mortgage loans. 14.
Defendant entered into captive mortgage reinsurance arrangements (“captive arrangements”) with lenders. Under each of these arrangements, Defendant agreed to cede a certain percentage of a referred borrower’s premiums back to the referring lender through the
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lender’s wholly-owned subsidiary, the captive reinsurer, purportedly in exchange for reinsurance coverage.
15.
Defendant entered into captive arrangements with many of the more than one hundred captive reinsurers, including those affiliated with virtually every major lender participating in the U.S. housing market.
Kickback Payments Made for Referrals 16.
Defendant’s premiums ceded to lenders’ captive reinsurers were kickback payments, paid in exchange for referring customers. 17.
The “reinsurance” provided by the lenders’ captive reinsurers was of little if any value because the projected value of the reinsurance to Defendant was far less than the premiums Defendant expected to cede.
18.
Defendant advocated the use of captive arrangements to encourage lenders to use its services. Ceding a percentage of premiums to lenders through captive reinsurers encouraged those lenders to refer mortgage insurance business to Defendant. 19.
These arrangements obligated Defendant to split its profits with lenders, but simultaneously enabled Defendant to increase or maintain its market share. 20.
When it first participated in captive arrangements, Defendant ceded approximately 12% of its premiums per referral to lenders’ captive reinsurers. Over time, Defendant ceded increasingly large percentages of its premiums to captive reinsurers in exchange for lenders’ continued referral of customers to Defendant, until the amount ceded was as high as 40% for each referral. With each change in ceding percentage, the reinsurance structure changed, purportedly to provide greater coverage.
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VIOLATIONS OF RESPA 21.
Section 8(a) of RESPA prohibits any person from giving or accepting “any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” 12 U.S.C. § 2607(a). 22.
Section 8(b) of RESPA prohibits the giving and acceptance of “any portion, split, or percentage” of any charge made or received for a settlement service other than for services actually performed in connection with a transaction involving a federally related mortgage loan. 12 U.S.C. § 2607(b).
23.
Defendant is a provider of settlement services subject to the requirements of, and is a “person” under, Section 8 of RESPA. See 12 U.S.C. § 2602. 24.
Mortgage insurance constitutes “business incident to or a part of a real estate settlement service” within the meaning of Section 8 of RESPA. 12 C.F.R. § 1024.2(b). 25.
The home loans originated by lenders and referred to Defendant are “federally related mortgage loans” as defined in 12 U.S.C. § 2602(1) and 12 C.F.R. § 1024.2(b). 26.
In the course and conduct of making these home loans, lenders routinely referred many consumers to Defendant for mortgage insurance. 27.
Many of these referrals of mortgage insurance business were made pursuant to agreements between Defendant and lenders which provided that Defendant would cede a portion of their mortgage insurance premiums to the referring lender’s captive reinsurer. These agreements are reflected by, among other things, written reinsurance and trust agreements, other written communications between and within lenders and Defendant, and by Defendant’s and lenders’ pattern, practice, and course of conduct.
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28.
Each ceding payment by Defendant to the captive reinsurers is a “thing of value” that has been given to a lender’s captive.
29.
Each such ceding payment: (a) was not and is not for services actually furnished or performed, or (b) grossly exceeded or exceeds the value of any such services. 30.
Each such ceding payment by Defendant was and is made in consideration of lenders’ continued referral of mortgage insurance business to Defendant. 31.
Each such ceding payment therefore was and is an illegal kickback in violation of Section 8(a) of RESPA, 12 U.S.C. § 2607(a), for which Defendant is liable. 32.
Each ceding payment paid by Defendant and accepted by a lender through its captive reinsurer is a portion, split, or percentage of the private mortgage insurance premiums paid by consumers who are lenders’ customers.
33.
Defendant gave and lenders accepted a portion, split, or percentage of charges received by Defendant for the rendering of business incident to a real estate settlement service other than for services actually performed, in violation of Section 8(b) of RESPA, 12 U.S.C. § 2607(b), for which Defendant is liable.
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THIS COURT’S POWER TO GRANT RELIEF 34.
Sections 8 and 16 of RESPA, 12 U.S.C. §§ 2607(d)(4) and 2614, and Section 1055 of the CFPA, 12 U.S.C. § 5565, empower this Court to grant injunctive relief to halt and redress violations of Section 8 of RESPA in actions brought by the Bureau. The Court, in the exercise of its equitable power, may award ancillary relief, including rescission of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies, to prevent and remedy any violation of Section 8 of RESPA in actions brought by the Bureau. 35.
Further, Section 1055 of the CFPA, 12 U.S.C. § 5565, empowers this Court to award civil money penalties, payment of damages or other monetary relief, public notification regarding the violation, limits on the activities or functions of the person, and the CFPB’s costs of prosecuting the action, in addition to the equitable remedies described above. PRAYER FOR RELIEF 36.
Wherefore, Plaintiff CFPB, pursuant to Sections 8 and 16 of RESPA, 12 U.S.C. §§ 2607 and 2614, Section 1055 of the CFPA, 12 U.S.C. § 5565, and the Court’s own equitable powers, requests that the Court:
A.
Enter a permanent injunction to prevent and restrain future violations of Section 8 of RESPA; and B.
Award civil money penalties for Defendant’s violations of Section 8 of RESPA.
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DATED:
April 4, 2013
Respectfully submitted,
Kent Markus Enforcement Director
s/Donald R. Gordon
Donald R. Gordon (Special Florida Bar No. A5501854) Kimberly J. Ravener Navid Vazire Crystal Sumner Enforcement Attorneys Consumer Financial Protection Bureau 1700 G Street, NW Washington, DC 20552 Telephone: (202) 435-7357 Facsimile: (202) 435-7722 e-mail: [email protected]
Attorneys for Plaintiff
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Certificate of Service
I certify that a true and correct copy of the foregoing Complaint was served by U.S. Mail and email on April 4, 2013 on all counsel or parties of record on the service list.
s/Donald R. Gordon
Donald R. Gordon
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SERVICE LIST
Case No.: ______________
United States District Court, Southern District of Florida
Dan D. Stilwell, Esq.
Vice President, Chief Compliance Officer Assistant General Counsel & Assistant Secretary Mortgage Guaranty Insurance Corporation 250 East Kilbourn Avenue Milwaukee, WI 53202 Telephone: (414) 347-2770 Email: [email protected]
Jay N. Varon, Esq.
Foley & Lardner LLP 3000 K St., NW Suite 600 Washington, DC 20007-5109 Telephone: (202) 672-5380 Email: [email protected]
Attorneys for Defendant