July 20, 2006
CitiMortgage Involved In Kickback Scheme
The big boys are at it again, trying to beat the system out of pure greed for making even more money:
The Department of Housing and Urban Development on July 18 announced $1.6 million in settlements under The Real Estate Settlement Procedures Act (RESPA) with a national mortgage lender and two major homebuilders who engaged in a business practice involving captive title reinsurance.
The agreements included a $650,000 settlement with CitiMortgage, Inc., and its captive title reinsurance company Chesapeake Reinsurance; a $675,000 settlement with M.D.C. Holdings, Inc., certain of its Richmond American Homes homebuilding subsidiaries and AHT Reinsurance; and a $305,000 settlement with WL Homes, which does business as John Laing Homes, a California and Colorado builder.
Captive title reinsurance is a practice whereby a title insurance company transfers a portion of the risk and title premium to a company owned by the builder, lender or real estate broker referring the title business.
In HUD’s view, any captive title reinsurance arrangements in which payments are not bona fide and exceed the value of the reinsurance are a violation of RESPA. HUD also has a particular concern when these arrangements involve an entity that is in a position to refer business to the primary title insurer. There is also strong evidence these arrangements are designed to generate referral fees when there is a history of few or no claims paid, HUD said.
"There is almost never any legitimate need or business purpose for title reinsurance on a single-family residence," said HUD Assistant Secretary for Housing Brian D. Montgomery. "HUD will continue to work with the states to investigate captive arrangements to make certain that they aren’t created for the purpose of obscuring referral fees."
The companies came forward and cooperated with HUD in reaching these settlements. In addition to the settlement payments, the companies agreed not to enter into any new captive title arrangements and to cease writing new captive title reinsurance business.
These are HUD’s first settlements in the nation involving the recipients of payments made by title companies to captive companies for reinsurance. The settlements come in the wake of recent settlements states have obtained from title insurance companies who paid significant portions of the premiums they received to such captive companies.
Broker Newswire
The Department of Housing and Urban Development on July 18 announced $1.6 million in settlements under The Real Estate Settlement Procedures Act (RESPA) with a national mortgage lender and two major homebuilders who engaged in a business practice involving captive title reinsurance. The agreements included a $650,000 settlement with CitiMortgage, Inc., and its captive title reinsurance company Chesapeake Reinsurance; a $675,000 settlement with M.D.C. Holdings, Inc., certain of its Richmond American Homes homebuilding subsidiaries and AHT Reinsurance; and a $305,000 settlement with WL Homes, which does business as John Laing Homes, a California and Colorado builder.
Captive title reinsurance is a practice whereby a title insurance company transfers a portion of the risk and title premium to a company owned by the builder, lender or real estate broker referring the title business.
In HUD’s view, any captive title reinsurance arrangements in which payments are not bona fide and exceed the value of the reinsurance are a violation of RESPA. HUD also has a particular concern when these arrangements involve an entity that is in a position to refer business to the primary title insurer. There is also strong evidence these arrangements are designed to generate referral fees when there is a history of few or no claims paid, HUD said.
"There is almost never any legitimate need or business purpose for title reinsurance on a single-family residence," said HUD Assistant Secretary for Housing Brian D. Montgomery. "HUD will continue to work with the states to investigate captive arrangements to make certain that they aren’t created for the purpose of obscuring referral fees."
The companies came forward and cooperated with HUD in reaching these settlements. In addition to the settlement payments, the companies agreed not to enter into any new captive title arrangements and to cease writing new captive title reinsurance business.
These are HUD’s first settlements in the nation involving the recipients of payments made by title companies to captive companies for reinsurance. The settlements come in the wake of recent settlements states have obtained from title insurance companies who paid significant portions of the premiums they received to such captive companies.
Broker Newswire
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