WASHINGTON, June 25 A U.S. housing regulator
should consider directing government-controlled mortgage finance
firms Fannie Mae and Freddie Mac to sue
companies that sold them overpriced insurance, an internal
watchdog at the regulator said on Wednesday.
Overpriced insurance may have cost the companies $158
million in 2012 alone, the Federal Housing Finance Agency's
Office of Inspector General said in a report.
"We recommend that FHFA assess the merits of litigation," it
Fannie Mae and Freddie Mac are owned by U.S. taxpayers,
which bailed out the firms in 2008 during the financial crisis.
The FHFA runs the two firms through a conservatorship.
The firms, which guarantee most new U.S. mortgages, are
responsible for ensuring homes have insurance against hazards
like severe storms and fires. When a borrower enters
foreclosure, the companies must pay for the insurance.
The inspector general's report said most of this insurance
is provided by two firms - Assurant and QBE Holdings, a
unit of Australian insurer QBE Insurance.
The watchdog said litigation could be merited because there
were signs the two firms and their subsidiaries may have
colluded with intermediaries, resulting in overpriced insurance.
The allegations of collusion arose in lawsuits filed by
state regulators, several of which were settled out of court
"for substantial sums of money," the watchdog said.
At the same time, the report acknowledged that litigation
may not be worthwhile if the legal process proved too costly.
"FHFA should balance the expected cost of such litigation
against the expected recovery," it said.
The watchdog said the FHFA had responded to its
recommendations with a commitment to complete its litigation
assessment within 12 months.
(Reporting by Jason Lange, editing by G Crosse)