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McMahon and Peter J. Felsenfeld February 12, at 9: As a result, and in light of recent far-reaching court decisions, it now appears that lenders may have exposed themselves to liability by forming mortgage reinsurance captives.
These types of cases generally settle at an early stage, so the claims against lenders relating to captive mortgage reinsurance structures rarely get decided on their merits.
Homebuyers in such instances are generally required to purchase private mortgage insurance PMI to protect against the risk of default. The homeowner has the option of refinancing into a loan that does not require PMI after reaching a predefined equity position. As the volume of mortgages increased in the s, lenders developed the practice of forming captive reinsurers to further spread the exposure relating to PMI.
The PMI insurer would typically transfer, or cede, a portion of its premiums to the captive in exchange for transferring a portion of the risk. The mortgage Case 1 capital mortgage insurance corp captive is a variation on the traditional captive structure.
In its simplest form, captives essentially operate as private in-house insurers that are wholly owned by a parent company. The parent pays the captive premiums, just as it would to a conventional insurance company, and the captive assumes the risk for certain defined losses.
The parent also bears the risk of loss if the opposite happens. Mortgage reinsurance captives, by contrast, are not funded by premiums paid by the parent company.
Just like a standard reinsurer, they operate by collecting premiums from the PMI provider and sharing in the payment of losses.
In that way, they appear to the outside world just like any other wholly owned subsidiary of the lender. Once commonplace, this arrangement may create legal exposure to lenders that outweighs the benefits of reinsuring through a captive. This holding provided a legal foundation for the case, and others like it, to go forward.
In essence, courts have historically immunized utilities from suits claiming that their rates are unreasonably high where those utilities are required by law to have their rates approved by a governmental regulatory authority.
Several courts transferred that concept to the insurance context in the late s, protecting insurers from claims challenging certain business practices on the grounds that their rates had been authorized by state regulators.
The current trend, however, is for courts to reject the link between insurance and rate regulation for the purposes of the doctrine. An example from is Ellsworth v. There, a lender required a mortgage holder to maintain flood insurance on his property because the Federal Emergency Management Agency FEMA declared that the property was in a flood zone.
The property owner declined to purchase the coverage and the lender force-placed a policy. The property then owner sued the lender and insurer, alleging that the forced placement constituted an improper kickback scheme.
The insurer countered that the plaintiff had suffered no cognizable injury because its rates had been approved by the Department of Insurance.
The court declined to apply the filed rate doctrine, holding that the case fundamentally involved a challenge to a business practice, not rates. With this procedural impediment removed, plaintiffs have gained leverage to push for favorable settlements. Another California federal court in struck a blow against mortgage reinsurance captives in Munoz v.
Plaintiffs there alleged that premiums paid to Atrium constituted improper kickbacks to PHH because Atrium never assumed real insurance risk.
The court held that the doctrine did not preclude a reinsurance-related RESPA claim, the court stated: Even though the plaintiffs alleged varying degrees of damages arising from distinct transactions, the court held, those damages were susceptible to common proof that rendered the case appropriate for class treatment.
It remains to be seen whether PPH Corp. Either option will likely be an expensive proposition.Capital One Financial Corporation is a bank holding company specializing in credit cards, auto loans, banking and savings products headquartered in McLean, Virginia..
Capital One is ranked 11th on the list of largest banks in the United States by assets.
The bank has branches including 30 café style locations and 2, ATMs. It is ranked st on the Fortune , 17th on Fortune's FHA mortgage insurance guidelines for Up Front Mortgage Insurance Premium (UFMIP) and Anual Premiums (MIP).
Pg. Lewicki (). Negotiation w/cases  (VitalSource Bookshelf Case 1: Capital Mortgage Insurance Corporation Frank Randall hung up the telephone, leaned across his desk, and fixed a cold stare at Jim Dolan.
Apr 05, · Read Case Study 1: Capital Mortgage Insurance Corporation in your text. It can also be accessed through Doc Sharing by downloading the file titled . Banking and lending products and services are offered by Capital One, N.A., and Capital One Bank (USA), N.A, Members FDIC.
Investment products are offered by Capital One Investing, LLC, a registered broker-dealer and Member FINRA / SIPC. Compl. [Dkt. 1]. FHA provides mortgage insurance on loans made by approved lenders throughout the United States, including mortgages on single family housing.
Id. ¶ FHA mortgage insurance provides lenders with protection against losses when mortgagors default. Id. ¶