WILMINGTON, Del. - Bank of America Corp.’s Countrywide unit must face a lawsuit alleging it orchestrated a kickback scheme for private mortgage-insurance premiums, an appeals court ruled, reversing a lower court’s decision to dismiss the case.
Three Pennsylvania homeowners who obtained mortgages from Countrywide Home Loans in 2005 and 2006 sued, claiming the company overcharged for private mortgage insurance and violated real estate laws by interfering with the settlement process. A district court judge erred in dismissing the case, the US Court of Appeals in Philadelphia ruled Wednesday.
“Congress bestowed upon the consumer the right to a real estate settlement free from unlawful kickbacks and unearned fees,’’ the appeals court said.
“We’re evaluating the ruling and will respond to the court at the appropriate time,’’ a spokeswoman for Bank of America said.
Bank of America acquired Countrywide in July 2008 after the mortgage lender faced bankruptcy amid payment defaults and foreclosures tied to subprime mortgages.
Countrywide, once the biggest US mortgage lender, required home buyers who took out mortgages with less than a 20 percent down payment to obtain private mortgage insurance from a pre-selected group of providers, the court said.
Those providers agreed to reinsure their policies with a Countrywide affiliate, Balboa Reinsurance Co. Balboa collected more than $892 million in reinsurance premiums since 1999 and paid nothing in claims, the appeals court said, citing the complaint. Countrywide accepted a portion of the premiums and provided no services in return, according to the complaint.
The ruling could affect similar cases pending against GMAC Inc., Washington Mutual Inc., and Wells Fargo & Co. Those cases were stayed in federal court in Philadelphia pending the decision in this case, he said.
