(Adds report details, lawmaker comment)
By Jason Lange and Dena Aubin
WASHINGTON, June 25 A U.S. housing regulator
will look into whether lawsuits should be filed by
government-controlled mortgage finance firms Fannie Mae
and Freddie Mac against companies that left
them on the hook for overpriced insurance, a 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.
Fannie Mae and Freddie Mac are owned by U.S. taxpayers, who
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.
A spokesman for Assurant said the company is reviewing the
"Protecting homeowners and investors with lender-placed
insurance is a commitment we share with the FHFA and the
Inspector General," Assurant spokesman Robert Byrd said.
A spokesman for QBE did not immediately respond to a request
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.
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.
Insurance regulators in New York, Florida and California
determined that Assurant, QBE and their subsidiaries charged
excessive rates, the report said. Costs may have been driven up
in part by profit-sharing deals between mortgage servicers and
the insurers, the report said.
In a response to the report, the FHFA said it will look into
litigation and complete its assessment within 12 months.
U.S. Representative Maxine Waters of California, who is the
ranking Democrat on the U.S. House Financial Services Committee,
applauded the report.
"The IG report documents troubling sweetheart contracts
between force-placed insurers and mortgage servicers that have
long driven up costs for borrowers," she said in a statement.
Given the enormous overpayments by Fannie and Freddie for
the insurance, she said, "the FHFA should take steps to hold any
and all wrongdoers accountable."
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.
(Reporting by Jason Lange, additional reporting by Dena Aubin;
Editing by G Crosse and Jonathan Oatis)