New Lawsuit Aimed at Banks for Reinsurance Kickbacks

Fifth Third Bank now joins Bank of America in the courtroom – both have, as of Friday, been hit with putative class action lawsuits claiming they gained millions of dollars in illegal referrals and kickbacks from private mortgage insurers.

The almost-identical suits have been filed in Pennsylvania federal court by the same law firms. In each case, the lenders are being accused on violating the Real Estate Settlement Procedures Act (RESPA,) reducing competition and boosting homeowner’s premiums.

From 2004 to 2011, BofA and Fifth Third Bank brought in millions of dollars in purported premiums but only paid out a fraction in claims. Fifth Third Bank received $54 mil in supposed premiums but paid less than $5 mil out in claims, while BofA got $285 mil and paid out around $59 mil. This helped the banks reduce their own risk while leaving insurers taking on almost all of the risk themselves.

Along with BofA and Fifth Third Bank, other defendants named are six private insurance companies, including United Guaranty Residential Insurance Co. and PMI Mortgage Insurance Co. BofA additionally named Triad Guranty Insurance Corp. as a seventh insurer.

It seems BofA and Third Fifth Bank are just following in the footsteps of HSBC USA Inc., which faces the same sort of suit, filed March 12. Finally, those greedy companies may finally have to pay up for what their actions have caused the people, the housing market and the economy.

Do you think the banks have a chance at winning the suits?

  • Agb4679

    Good.  I recently got a call from Aurora Bank stating that my mortgage insurance plan had been rescinded from a property I bought in 2004 in Las Vegas.  Obviously there was something fishy going on there too, and now I’m being refunded my insurance premiums which are totally $7,500+. I’m expecting a check in the mail any day now.  Fabulous that some action is being taken against the swindling business practices of Bank of America and others.  Thanks.  

    • Hldelano

       if you had paid down to 80% or 78% loan to value the pmi policy is supposed to be taken off, possibly they just kept it going.

  • Mia Shin

    I would like to say, Pacific Western Bank, loaned $3,000,000 to the Wilshire Regent Homeowners Association, the collateral being “any and all assessments, now and into the future, until loan is repaid,” without the members approval.  This was initiated by most likely offering a kickback to the Board of Directors who signed the loan.  It’s very dirty money in my opinion, especially now they want to pass it down to the members, via a special assessment, to pay off the borrowed funds.  But if they borrowed without my vote, the loan is unenforceable.  I wonder  if there are any other comments regarding this type of commercial loan issued to HOAs without the member’s knowledge.  The guy that introduced the Lender to our Board happens to be a licensed Broker, so he most definitely got loan points.  This is a loan obtained, during a conversion process as well, they lied to the DRE, the Buyers and other 1st TD Lenders.   Anyone have any comments? 

    • Hldelano

       Go to the DRE if you feel they lied. Your board of directors probably has the right to negotiate or encumber the property, but you should check the by laws and or cc&r’s. Did they borrow to fix something in the common area or defects in construction? If they were converting, what were they converting?

  • Mary

     I hope not. To comment on the comment below by Mia Shin, definitely sounds like the broker and the lender have some sort of kickback scheme not only with each other, but with member(s) of the board. I know this blog has reported in the not-so-distant past about brokers and agents that break the rules to make a few bucks. Only problem here is that I’m not an expert enough to be able to recognize if any laws have been broken. But it’s definitely shady and should be looked into nonetheless…

  • Hldelano

    what’s interesting is that in most states kickbacks are against the law and I also think that it could be a federal claim as it would come under the Real Estate Settlement and Procedures Act, (RESPA).  It obviously was not being disclosed to any of the borrowers, big time claims here possibly and should be loss of Insurance and banking licenses….sure!