When a home of less than 20% is purchased, the lender usually asks the borrower to buy PMI. PMI protects the lender in the event of default of the loan by the borrower. Borrowers usually have no choice from their PMI provider and cannot make a price comparison. On February 25, 2011, Mehri &Skalet and Co-Counsel filed a lawsuit against sunTrust Bank in the U.S. District Court for the Eastern District of Pennsylvania, on behalf of a class of owners. The complaint alleges that SunTrust entered into agreements with private mortgage insurance companies (PMIs) to obtain illegal kickback fees for PMI`s deal with these insurers. The Real Estate Settlement Procedures Act (RESPA) prohibits lenders from accepting bribes or referral fees from persons providing a real estate settlement service, including PMI providers. In other words, a lender, directly or indirectly, cannot accept intermediation fees by the insurer that provides the PMI for the borrower`s loan. The complaint alleges that sunTrust and its PMI partners attempted to circumvent RESPA`s ban on bribes and undeserved fees by requiring PMI providers to pay SunTrust a portion of borrowers` PMI premiums through their captive reinsurers subsidiary and through other agreements with PMI insurers. The allegations in this case relate to a system that is implemented under the guise of so-called “captive reinsurance,” in which a subsidiary of SunTrust – its “captive reinsurer” – receives a portion of the borrower`s monthly premiums, supposedly to share the risk of credit default. However, the agreement is structured in such a way that SunTrust actually takes little or no risk. Thus, the action asserts that the payment is essentially a kickback or an intermediation fee.
The complaint alleges that SunTrust raised millions of dollars through its captive reinsurance system, a sum that far exceeded the value of all the services provided. If you have a mortgage and you think your PMI fees are excessive or may be subject to a captive reinsurance system, please contact us by filling out our online complaint form….