Radian Guaranty (Radian), the mortgage insurance subsidiary of Radian group, has reached a settlement with the Consumer Financial Protection Bureau (CFPB)—to resolve a previously disclosed federal investigation of the company’s participation in captive reinsurance arrangements.
As part of the settlement—filed in the US District Court for the Southern District of Florida—Radian has agreed not to enter into new captive arrangements for ten years and pay a civil penalty of $3.75 million.
Radian has not entered into any new captive reinsurance arrangements since 2007.
“Radian and other private mortgage insurers entered into captive arrangements pursuant to which affiliates of mortgage lenders reinsured a portion of the risk originated by the lenders (and insured by us) in return for a portion of the mortgage insurance premiums that would have been paid to us,” said a statement from Radian.
The firm relied on written guidance from the US Department of Housing and Urban Development (HUD) in structuring these captive arrangements. Radian also sought the opinions of reputable actuarial firms to ensure that the terms of their arrangements met HUD’s standards.
As of the end of last year Radian had received total cash reinsurance recoveries from these captives arrangements of approximately $750 million.
Since 2008 the HUD has been investigating into the captive arrangements of private mortgage insurers, including Radian, to determine whether these arrangements constituted an unlawful payment under the federal Real Estate Settlement Procedures Act (RESPA). The investigation was transferred to the CFPB in 2011 by the enactment of the Dodd-Frank legislation.
Teresa Bryce Bazemore, president of Radian Guaranty, said: “We are pleased to put this behind us. While we believe our captive arrangements complied with RESPA and caused no harm to consumers, this settlement was an opportunity to eliminate distractions at an acceptable cost so that we can continue our primary focus of writing new, profitable mortgage insurance and helping low down-payment borrowers realise the dream of homeownership.”
