Hot on the heels of a $15 million Consumer Financial Protection Bureau settlement with mortgage insurers Genworth Financial Inc (NYSE:GNW), MGIC Investment Corp. (NYSE:MTG), Radian Group Inc (NYSE:RDN), and United Guaranty, a subsidiary of American International Group Inc (NYSE:AIG), over kickbacks paid to banks for mortgage insurance, comes some bad news in the same vein — this time, for Bank of America Corp (NYSE:BAC).
Insurance and reinsurance
Even as the above insurers are forking over settlement checks to the CFPB, the bureau is investigating further the whole sordid mess that prompted the settlement in the first place. Now, it is turning its gaze to the recipients of those bribes: mortgage lenders like B of A.
The homeowners took out mortgages from Bank of America between 2005 and 2007, and allege that the bribes drove up costs for all borrowers, to the tune of nearly $285 million over a seven-year period. Not surprisingly, Radian, Genworth, and United Guaranty are also named in the suit.
Purportedly, the scheme worked like this: Because mortgage loans with less than a 20% down payment require mortgage insurance in case of default, the large insurers sought to gain more business for themselves by bribing the lenders. In addition, mortgage lenders set up reinsurance entities that were utilized by the insurance companies to channel bribery money to the lenders in exchange for additional business — since it is the lender, not the borrower, that picks the insurance carrier.
Other banks were involved, too
Bank of America Corp (NYSE:BAC) was by no means the only lender to possibly engage in this behavior. Last February, Wells Fargo & Co (NYSE:WFC) learned that a complaint against itself and QBE Insurance had been given class action status in Florida, while two months later, Fifth Third Bancorp (NASDAQ:FITB) was sued by homeowners alleging that Fifth Third engaged in the same type of conduct, setting up a reinsurance company through which insurance money was funneled.
Both JPMorgan Chase & Co. (NYSE:JPM) and Citigroup Inc. (NYSE:C) have come under scrutiny by the state of New York in recent months, as well.
Misery may love company, but for Bank of America Corp (NYSE:BAC), more bad news on the legal front is always unwelcome given its vast stable of pending lawsuits. Though the current claim of damages here is not onerous, it is one more reminder that we have yet to see the end of B of A’s legal woes.
The article Another Nagging Headache for Bank of America originally appeared on Fool.com.
Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends American International Group (NYSE:AIG) and Wells Fargo. The Motley Fool owns shares of American International Group, Bank of America, Citigroup, Fifth Third Bancorp, JPMorgan Chase, and Wells Fargo and has the following options: Long Jan 2014 $25 Calls on American International Group.
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