Editor: David Reiss
Brooklyn Law School

April 5, 2013

Reiss on Mortgage Insurance Probe, Again

By David Reiss

American Banker also ran a story on the settlement, Lenders Likely Next Target in CFPB Reinsurance Kickback Probe (paywall) that includes an interview with me:

WASHINGTON – The Consumer Financial Protection Bureau’s enforcement actions against four large mortgage insurers are likely just the start of efforts against an alleged widespread mortgage insurance kickback scheme that involves several lenders.

The agency ordered the firms to stop reinsurance deals with mortgage lenders that were purportedly made in return for getting a larger slice of the mortgage insurance pie. It also said the insurance companies must pay a total of $15.4 million in civil money penalties and undergo additional CFPB monitoring.

Yet the paltry size of the fines – combined with additional investigations and ongoing litigation involving borrowers, insurers and big banks alleged to have participated – suggest more enforcement activity is still on the way, including against lenders that were said to have received the reinsurance business. The scheme is estimated by some to have involved as much as $6 billion in kickbacks.

“In the context of the massive amount of mortgage fraud that occurred in this industry, a $15 million penalty seems pretty small,” said David Reiss, a professor at Brooklyn Law School. “But given that further enforcement against the large financial institutions that demanded the kickbacks is possibly still on the horizon, the jury is out on whether this will be an effective set of enforcement actions.”

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