Industries Banking/Finance

Genworth mortgage unit to pay $4.5 million to settle federal investigation

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The mortgage unit of Henrico County-based Genworth Financial Inc. has agreed to pay $4.5 million to settle an federal investigation of alleged kickbacks paid by mortgage insurers to mortgage lenders in exchange for business.

The Consumer Financial Protection Bureau (CFPB) said Genworth U.S. Mortgage Insurance (Genworth USMI) was one of four mortgage insurers to sign consent orders. Together, the four will pay a total of $15.4 million in penalties.

As part of its investigation, CFPB had filed complaints against the four companies, but the company and the agency noted that complaints did not represent a finding or ruling that the defendants had violated the law.

CFPB alleges kickbacks were paid to the lenders through “captive reinsurance arrangements.” Many insurers buy reinsurance to cover their risks in case of unexpectedly high losses. CFPB says that when mortgage lenders sets up a subsidiary to provide reinsurance to the mortgage insurers, it becomes a “captive” arrangement because the lender both originates the loan and provides reinsurance.

The federal agency said kickbacks paid to lenders could inflate the cost of mortgage insurance paid by borrowers. Mortgage insurance typically is required when homeowners borrow more than 80 percent of the value of their homes.

Rohit Gupta, the president and CEO of Genworth USMI, said the company followed guidance from the Department of Housing and Urban Development (HUD) in developing its captive reinsurance arrangements.

“HUD indicated that these arrangements are permissible if certain requirements are met,” he said. “Genworth followed the guidance, and had the arrangements tested by independent third parties to verify that the HUD requirements were met. Further, consumers paid the same amount for the underlying insurance whether or not their loan was part of a captive reinsurance arrangement.”

The executive said Genworth USMI agreed to the settlement so it could focus of its business and “resolve the uncertainties inherent in such a review and any possible resulting litigation.”

In addition to paying penalties, Genworth USMI and the other mortgage insurers agreed to refrain from any new captive reinsurance arrangements with mortgage lender affiliates for 10 years. The settlement, which will be recorded in the first quarter of 2013, is not expected to have a major impact on Genworth USMI’s financial results.

The three other mortgage insurers involved in the enforcement action were: Mortgage Guaranty Insurance Corp., Radian Guaranty Inc. and United Guaranty Corp.

The investigation, begun by HUD’s Office of Inspector General, was transferred to CFPB in July 2011.

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