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Class Cert. Sought In PHH Captive Insurer Scheme

Posted: February 2, 2010
By: Abigail Rubenstein
Source: Law360

Homebuyers are seeking class certification in a suit accusing mortgage lender PHH Corp. of working with its captive reinsurer Atrium Insurance Corp. to receive an unlawful cut of the premiums its borrowers paid for private mortgage insurance.


The plaintiffs' complaint characterized the alleged scheme among PHH Corp., PHH Home Loans, PHH Mortgage Corp., Atrium and insurers who are not named in the suit as "a secretive conspiracy to circumvent RESPA's prohibition against kickbacks and unearned fees."

According to the complaint, buyers who purchase homes and put down less than 20 percent as a down payment are typically required to purchase private mortgage insurance to protect mortgage lenders in the event that the buyer defaults. The suit says that the homebuyers are not usually given the opportunity to select the insurer.

The RESPA bars mortgage lenders from accepting kickbacks for referrals to private insurance for these policies and from accepting any portion of fees that does not correspond to services actually performed, but plaintiffs allege that PHH got around these provisions through purported reinsurance arrangements.

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