A federal judge says the private insurance companies and Bank of America sued by homeowners can move forward. The plaintiffs, a group of homeowners, say that Bank of America profited in the premiums it paid on private mortgage insurance by being in cahoots with the insurance companies. They say it equated to higher premiums. A judge agreed and the lawsuit can now proceed.
In Philadelphia, U.S. District Judge Berle Schiller refused to dismiss the lawsuit, even when the bank and the insurance companies cited statute of limitations found in RESPA. The particular aspect requires lenders to provide specific and complete information on all costs associated with anything to do with the purchase of a home or property.
Failed to Transfer Risk
It all began last year when three homeowners in Pennsylvania came together to sue Bank of America. They said the bank’s scheme equated to close to $300 million in profits between 2004 and 2011. The bank denied the allegations and says it was simply collecting its share of profits for referring homeowners to the insurance companies. Only problem is, many homeowners aren’t even aware of an additional insurance company in the mix. The suit also claims that the homeowners were never told that the agreements between the bank and the insurers “failed to transfer risk as required to be legitimate” and that Bank of America and the insurers misrepresented their relationship and failed to disclose which entity would insure their loans. They assumed that their choice of agents in their homeowner’s insurance is the same that provides the PMI. It’s rare that anyone during the closing process even mentions the differences.
Ultimately, Plaintiffs (homeowners) contend, borrowers paid more for mortgage insurance because the price included the kickbacks to lenders,
the judge wrote in his opinion Thursday as he denied motions to dismiss the case.
His opinion also stated that regardless of whether the arguments were legitimate would be decided at a later time and that at this stage of the suit, the allegations that the bank and insurers were acting illegally was enough to allow the lawsuit to proceed thereby denying their motion to dismiss the case.
The plaintiffs took out mortgages from Bank of America between 2005 and 2007 also named several private insurers in the papers, including Radian Guaranty, Genworth Financial’s Genworth Mortgage Insurance Corp., and United Guaranty Residential Insurance, which is a subsidiary of New York-based American International Group. The goal is to seek a class action lawsuit that would represent all borrowers who entered into mortgages with Bank of America since Jan. 1, 2004.
Meanwhile, Shirley Norton, a Bank of American spokeswoman, said,
This is a procedural ruling and not a ruling on the merits of the case…we believe the allegations are without merit and will continue to defend vigorously against those allegations.
There’s another dynamic in this story, though. The Consumer Financial Protection Bureau oversees RESPA documentation. It oversees the enforcement and as a result of that, it announced this month that the companies named in the suit, including Genworth, United and Radian have agreed to pay more than $15 million in penalties to settle claims they paid illegal kickbacks to lenders in exchange for business. This certainly lends credence to the lawsuit and might have influenced the judge’s favorable decision to those homeowners. The consumer watchdog group says the consent orders reflect a number of complaints from consumers which have been “prevalent for more than 10 years”. The fact that the insurers received impressive kickbacks from lenders was a common practice and not a secret that was well kept. It was just another piece of the puzzle that led to the financial crisis, including the record number of foreclosures and ultimate recession.
Richard Cordray, CFPB Director, said in a statement this month,
Illegal kickbacks distort markets and can inflate the financial burden of home ownership for consumers.
He said his agency believes millions of dollars were funneled to the mortgage lenders for more than a decade and that the recent ruling would finally put an end to these types of unethical and illegal arrangements.
It’s interesting to note that even as CFPB continues to secure these types of protections for consumers, including at least four massive fines for credit card companies and banks that took advantage of consumers for years, Congress refuses to even acknowledge the agency. In fact, one lawmaker this week said he wasn’t interested in anything Cordray had to say as he prepared to report to Congress to testify on the accomplishments his agency has had in recent months. The fact that the bureau played a role in these behaviors between the insurers and banks were likely part of what was in Cordray’s report that Congress didn’t hear about.
Rep. Jeb Hensarling (R-TX), chairman of the House Financial Services Committee, says he can’t “legally accept testimony” from Cordray until he’s the valid director, even though President Obama swore him quite some time ago. Instead, Hensarling says he’s happy to oversee the CFPB. That would be the worst thing for consumers since the Madoff Ponzi scheme. In the meantime, Hensarling wrote a letter to the bureau’s attorney stating that he’d be happy to hear Cordray’s testimony as soon as someone “validly holds this position” and that until then, “the committee intends to conduct rigorous oversight of the CFPB’s activities” and that he will expect total cooperation from the bureau including making other employees of CFPB available to testify at will.
The question is why is Hensarling so resistant to hearing what’s probably the only good thing happening in the American government right now? This is the one agency that’s actually looking out for the welfare of American citizens. It’s serving as a powerful watchdog group that has no ulterior motives, and yet, Congress continues to insist it’s not obligated to hear any kind of testimony, even after it plans it and orders Cordray there to testify.
For now, though, the lawsuit continues and unless Congress gets in the way, it could mean homeowners have one more victory ahead of them as they go about the buisiness of picking up the pieces.