Federal Appeals Court Reinstates Homebuyers' Class Action Suit Alleging PMI Kickback Racket Between Countrywide & Reinsurance Company

A Federal appellate court recently reinstated a homebuyers' class action lawsuit against Countrywide Home Loans, Inc. and Balboa Reinsurance Company alleging violations of the Real Estate Settlement Procedures Act ("RESPA"). The court described the plaintiffs allegations as follows:

• Plaintiffs alleged that their private mortgage insurance premiums were channeled into an unlawful “captive reinsurance arrangement”—essentially, a kickback scheme—operated by their mortgage lender, Countrywide Home Loans (“Countrywide”), and its affiliated reinsurer, Balboa Reinsurance Co. (“Balboa”), in violation of RESPA section 8(a) and section 8(b), 12 U.S.C. § 2607(a)-(b). The thrust of their complaint was that, in enacting and amending section 8, Congress bestowed upon the consumer the right to a real estate settlement free from unlawful kickbacks and unearned fees, and Countrywide’s invasion of that statutory right, even without a resultant overcharge, was an injury-in-fact for purposes of Article III standing.

A lower court disagreed and dismissed the complaint without prejudice for lack of jurisdiction. The 3rd Circuit Court of Appeals concluded differently, reversed the lower court, and reinstated the lawsuit.(1)

For the ruling, see Alston v. Countrywide Financial Corporation, et al., No. 08-4334, 2009 U.S. App. LEXIS 23822 (3rd Cir., October 28, 2009).

Thanks to nationally recognized mortgage servicing fraud watchdog Mike Dillon at GetDShirtz.com for the heads-up on the court ruling.

Go here for Mr. Dillon's commentary on a variety of mortgage servicing fraud issues.

(1) The U.S. Department of Justice - Civil Division intervened in this matter, siding with the homebuyers' position.