* CFPB says PHH collected hundreds of millions of dollars in kickbacks
* Bureau says insurance scheme raised prices for borrowers
* PHH says allegations mischaracterize its business
WASHINGTON, Jan 29 (Reuters) - The U.S. consumer financial watchdog said on Wednesday it was seeking fines against PHH Corp and repayment to consumers over allegations that the mortgage lender steered borrowers to insurers from which it took kickbacks.
The Consumer Financial Protection Bureau (CFPB) said lenders sometimes require mortgage insurance for large loans to protect themselves if the borrower defaults. Lenders generally choose the insurers, which often buy secondary insurance, or reinsurance, to reduce some of their own risk.
When New Jersey-based PHH made loans, the bureau said, it referred borrowers to certain insurers who would then buy reinsurance from PHH's subsidiaries, a form of illegal "kickback" to the company.
Over about 15 years, PHH collected hundreds of millions of dollars in kickbacks, the bureau said. It said PHH raised prices for consumers by steering them to insurers with higher premiums and charging more if borrowers did not buy insurance from its partners.
"The bureau believes that from the start of the arrangements, and continuing into at least 2009, PHH manipulated its allocation of mortgage insurance business to maximize kickback reinsurance payments for itself," the CFPB said in a statement.
PHH spokesman Dico Akseraylian said the company disagreed with the CFPB's findings and planned to defend itself. "We are extremely disappointed that the CFPB has filed a notice of charges related to our mortgage reinsurance subsidiary's activities.
"We believe the CFPB's allegations grossly mischaracterize the legitimate business activities of our mortgage reinsurance subsidiary," he said.
The consumer bureau was created by the 2010 Dodd-Frank oversight law and charged with cracking down on financial scams that harm borrowers.
The agency has gone after mortgage insurance kickback schemes earlier, with five insurers agreeing to pay fines in 2013 over claims they paid lenders for business.
Bureau officials said at the time they expected to bring cases against lenders that accepted kickbacks.
On Wednesday, the bureau said the investigation of PHH began with the U.S. Department of Housing and Urban Development. After the passage of Dodd-Frank, the CFPB took up the probe.
PHH disclosed in 2012 that the consumer bureau was looking into its mortgage insurance practices.
The bureau said it is seeking fines and repayment to customers from PHH and several of its subsidiaries. The bureau filed the case in an administrative forum at the agency, and it will be tried by an administrative law judge.