Skip to Content

Get Your FREE Consultation


CFPB Pursues Mortgage Insurer in Kickback Scheme

February 7, 2014

The new Consumer Financial Protection Bureau recently initiated “administrative proceedings” against New Jersey based mortgage insurance company PHH Corporation and its corporate subsidiaries. The CFPB has alleged that an investigation revealed a quid pro quo kickback scheme where PHH would lend, or “originate” a mortgage, and then refer that mortgagor to an insurance company that would insure the mortgage, in exchange for a cut of premiums. According to the CFPB, the deal allowed PHH to steer its new mortgagors to companies that would, in return, purchase re-insurance from PHH and its affiliates.

Many homeowners might not know of the need for mortgage insurance, or even if they have it on their home. In a typical scenario, a mortgagor (the homeowner) has mortgage insurance on a loan where they did not pay 20 percent down at closing. Mortgage insurance is not the same as traditional homeowners insurance – it does not pay the homeowner in the event of a loss. Instead, it pays the lender who loaned the homeowner the funds, in case the homeowner defaults on the loan. Traditional insurance premiums, like homeowners insurance, is paid by the homeowner, but protects the homeowner from loss in the case of, say, a fire to the home. Mortgage Insurance premiums, however, commonly referred to as “PMI,” are still paid by the homeowner as part of his or her mortgage payment, but the beneficiary of that policy is the bank or lender, not the homeowner. It is one of the few methods of insurance where the premium is paid by the person who is not the beneficiary of the insurance policy.

This scenario often means the lender picks the mortgage insurance company. Consumers can usually review their loan information through the website of their loan servicer, and find out whether they are making PMI payments as part of their mortgage, and who the PMI carrier is. All homeowners with a mortgage should know whether they are paying for PMI coverage, as certain federal laws permit a homeowner to stop paying on these policies if there is enough principal paid against the original loan amount.

If the mortgage insurance policy has to be called on because the homeowner defaults on their loan, the lender gets their money from the insurance company. At that point, however, the insurance company to whom the homeowner has been making payments can now go after the homeowner to recover the amount paid to the lender after default. This is typically referred to in most states as a “subrogation” action.

No Win, No Fee

Review Us

Martin & Jones, PLLC logo

“I appreciate all you’re doing and trying to do for me. I don’t think I’ve ever talked to a nicer attorney than Mike, and his assistant. You’re real nice people. It really makes you feel better, even with all the problems I have.”

Contact Our North Carolina Personal Injury Law Firm

for a Consultation for Your Accident or Medical Malpractice Claim

Call us at 800-662-1234
No Win, No Fee

The law firm you choose makes a difference. If you are the victim of an accident or an illness that someone else caused, the North Carolina personal injury law firm of Martin & Jones has the depth of experience, skills and sensitivity to make your road to recovery as smooth as possible. Whether you have experience with the legal system or have never hired a medical malpractice or personal injury lawyer before, our attorneys and staff will do our best to answer your questions, provide clear advice and prepare you and your family for what to expect. If you would like more information or to meet with one of our attorneys, please fill out the form below or call us at 800.662.1234.