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Sunday, June 16, 2024 | Back issues
Courthouse News Service Courthouse News Service

Countrywide Class Action Revived in 3rd Circuit

(CN) - Home buyers have a right to sue Countrywide Financial Corp. and an affiliate for allegedly running a mortgage insurance kickback scheme, even if the purported scam didn't result in higher premiums, the 3rd Circuit ruled.

According to the borrowers, Countrywide forces buyers who put less than 20 percent down on their homes to buy private mortgage insurance through one of six providers chosen by Countrywide.

These providers allegedly struck a deal with Countrywide to "reinsure" the policies with Countrywide affiliate Balboa Reinsurance Co. under a "captive reinsurance arrangement."

This scheme allowed Countrywide to collect a portion of the private mortgage insurance premium - essentially a kickback for the referrals, according to the class action.

Balboa has collected more than $892 million in reinsurance premiums since 1999 and paid nothing toward insurance claims, the borrowers alleged.

The plaintiffs said the sham reinsurance led to higher premiums, but Countrywide argued that this wasn't the case. Because monthly premiums are set by the Pennsylvania Insurance Department, providers can't raise them, Countrywide claimed.

The homeowners countered that even if their rates didn't change, the defendants' action still violated the Real Estate Settlement Procedures Act's antitrust protections.

The district court dismissed the complaint for lack of standing, but the Philadelphia-based appeals court reversed.

"What is before us for decision turns on a question of statutory interpretation - does or does not the plain language of RESPA section 8 indicate that Congress created a private right of action without requiring an overcharge allegation?" Judge Barry explained.

"We conclude that it does."

The three-judge panel reversed and remanded.

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