The named plaintiffs in this putative class action alleged that their private mortgage insurance policies were subject to captive reinsurance arrangements with Balboa Reinsurance. Under this arrangement, it was alleged, the primary insurer ceded a percentage of the mortgage insurance premiums paid by borrowers to Balboa in exchange for assuming a portion of the primary insurer’s risk, but that the risk assumed by Balboa was not commensurate with the premiums it received. Plaintiffs further alleged that these excessive reinsurance premiums were disguised kickbacks paid to Balboa’s parent company, Countrywide, in exchange for Countrywide’s referral of its mortgage business to Balboa. It was claimed that this arrangement violates the federal Real Estate Settlement Procedures Act, which prohibits kickbacks and fee splitting for settlement charges for services rendered in connection with home mortgage loans.
Defendants moved to dismiss, initially arguing the case was subject to the Burford abstention doctrine, which requires that a federal court sitting in equity not interfere with the proceedings or orders of state administrative agencies. This argument was rejected because the plaintiffs sought money damages in addition to equitable relief. Defendants further argued that plaintiffs lacked Article III standing to sue, since the rates they paid were filed with the Pennsylvania Department of Insurance, so plaintiffs paid only the legal rate they could have paid for mortgage insurance. The court noted, however, that plaintiffs contended they had standing to sue for a RESPA violation even if the kickback arrangement had not increased their rates. Although the court recognized “considerable disagreement” among the federal courts on the issue, it ultimately sided with the courts that have held that where a plaintiff has not been overcharged because of any illegal kickback or fee splitting, RESPA’s provisions do not authorize a plaintiff to sue for damages. The case was dismissed for lack of subject matter jurisdiction. The court entered an opinion and a separate order. A notice of appeal to the Third Circuit was filed on October 27, 2008. Alston v. Countrywide Financial Corp., Case No. 07 CV 3508 (USDC E.D. Pa. Sept. 29, 2008).
This post written by Brian Perryman.