MILWAUKEE, April 4, 2013 /PRNewswire/ -- MGIC Investment Corporation's (NYSE: MTG) principal subsidiary, Mortgage Guaranty Insurance Corporation ("MGIC"), commented on the consent order settlement announced today by the Consumer Financial Protection Bureau (the "Bureau") to resolve a previously disclosed investigation of captive reinsurance transactions in the mortgage insurance industry. The settlement is subject to approval by the U.S. District Court for the Southern District of Florida.
The settlement results from a nearly five-year-old industry-wide investigation into captive reinsurance arrangements originally commenced by the U.S. Department of Housing and Urban Development ("HUD") in 2008. HUD subsequently transferred its investigation to the Bureau. MGIC cooperated fully with the Bureau during the investigation.
The complaint filed by the Bureau with the U.S. District Court today alleges that certain captive reinsurance transactions entered into by MGIC violated the Real Estate Settlement Procedures Act ("RESPA") because the projected value of the reinsurance was less than the reinsurance premiums paid by MGIC to the reinsurer. As the consent order settlement recites, the settlement is not "an adjudication of any fact or legal conclusion" and will not have "any preclusive effect in any other action or proceeding." Likewise the consent order makes clear that "MGIC is not making any evidentiary admissions of liability" for the practices alleged.
In 1997, HUD issued guidance to the mortgage industry indicating that properly structured captive reinsurance transactions were not prohibited by RESPA. MGIC believes its reinsurance arrangements were structured in accordance with that longstanding guidance. Among other things, MGIC obtained actuarial opinions from independent actuaries reflecting that the reinsurance premiums paid by MGIC were reasonably related to the risk assumed by the captive reinsurers. In addition, borrowers received notice from their lender that the borrower's loan might be reinsured by an affiliate of the lender. As part of the notice, each borrower was given an "opt-out" right to exclude his or her loan from the captive reinsurance transaction.