The Real Estate Settlement Procedures Act (“RESPA”) prohibits lenders from accepting bribes or transfer fees from persons offering property management services, including PMI providers. In other words, as a matter of law, a lender cannot accept – directly or indirectly – the transfer fee of the insurer that provides the PMI to the borrower. The complaint argues that sunTrust and its PMI partners attempted to circumvent RESPA`s ban on bribes and unearned fees by arranging for PMI suppliers to pay a portion of the PK premiums paid by borrowers to SunTrust through their subsidiary insurer and through other agreements with PK insurers. On February 25, 2011, Mehri-Skalet and Co-Counsel filed a complaint against SunTrust Bank in the U.S. District Court for the Eastern District of Pennsylvania on behalf of a class of owners. The complaint accuses SunTrust of having entered into agreements with Private Mortgage Insurance (PMI) companies to obtain illegal bribery fees for the organization of PMI with these insurers. When a home is purchased with less than 20% down payment, the lender usually requires the borrower to buy PK. PMI protects the lender in the event of a loan default by the borrower. Borrowers generally have no choice in their PMI provider and cannot compare shop to price. In this case, the allegations relate to a system implemented under the guise of so-called “prisoner reinsurance,” whereby a subsidiary of SunTrust – its “linked reinsurer” – receives a portion of the monthly PK premiums paid by the borrower, allegedly for the distribution of credit risk on loans. However, the agreement is structured so that SunTrust takes little or no risk. Thus, the grievance argues that the payment is essentially a bribery or removal tax. The complaint alleges that SunTrust raised millions of dollars through its captive reinsurance system, a sum that far exceeded the value of all services provided.
If you have a mortgage and feel that your KP fees are excessive or are subject to a captive reinsurance system, please contact us by filling out our online claim form.