AIG Investigated for Mortgage Protection Insurance Violations
AIG insuranceÂ and other insurers are reportedly beingÂ investigated to determine whether their mortgage protection insurance practices comply with federal real-estate law, according the insurance company. The investigation, being conducted by the Consumer Financial Protection Bureau (CFPB) and U.S. Securities and Exchange Commission(SEC), will focus on the profits companies may be gaining from participating in this form of insurance.
Mortgage Protection Insurance Violate Laws
A number of companies, including AIG insurance and Genworth Financial, have stated in the media that they, or their subsidiaries, have received subpoenasÂ from the CFPB to obtain documents and answer written questions related to their management of mortgage protection insurance policies.
Mortgage insurance policies are unique to homeowners insurance policies in that they are related to the down payment a borrower makes when purchasing a home. Typically, when homeowners take on a mortgage, they are required to pay a 20-percent down payment on the home.
However, some who cannot afford the full down payment are allowed to reduce it down to, 10 percent of the total price of the home, for example. The remaining 10 percent owed is rolled into the loan, and the homeowner is required to purchase mortgage protection insurance to guarantee the loan. In the event of default, the bank will still receive its money.
This new type of insurance gave mortgage companies a new way to earn money, encouraging them to seek business from banks. Now, state officials and the CFPB allege that mortgage insurersÂ have beenÂ paying banksÂ money to win their business, which is a violation of the Real Estate Settlement Procedures Act.
AIG Insurance Plans to Cooperate in Probe
Both AIG insurance and Genworth say they plan to cooperate in the investigation, which was initiated by the inspector general at the U.S. Department of Housing and Urban Development, but has since been taken over by the CFPB, along with continued inquiries fromÂ the SEC.
The subpoenas issued have been examining the companies’ mortgage protection insurance arrangements to ensure they are not in violation of the law by paying banks to steer borrowers to a particular mortgage insurer. Also, investigators want to make sure consumers are not paying higher premiums than necessary through these lender-insurance business relationships.
While the mortgage insurance companies involved have admitted that they are being investigated, when asked about the probes by the Associated Press, a consumer bureau spokeswoman declined to comment.