Insurers Could Face Suits Over Fannie-Freddie Insurance Prices

The regulator of Fannie Mae and Freddie Mac will consider suing insurers who charged excessive fees for hazard coverage paid by the two government-owned mortgage companies, an auditor’s report said.

Fannie Mae and Freddie Mac could have overpaid about $158 million in 2012 alone for lender-placed insurance, according to the report released by the Federal Housing Finance Agency’s Office of Inspector General. The coverage is purchased by mortgage servicers and billed to borrowers who allow their policies to lapse.

Fannie Mae and Freddie Mac, which buy loans and package them into guaranteed securities, take over the homeowners’ insurance payments when mortgages they back undergo foreclosure.

The auditors’ analysis of the rates paid by Fannie Mae and Freddie Mac found that the companies, which were placed into U.S. conservatorship as they neared collapse following the collapse of the housing market, “suffered considerable financial harm” in the lender-placed insurance market, the report said.

In a letter responding to the report, FHFA’s general counsel, Alfred Pollard, said that the agency would weigh lawsuits against insurers within the next year.

State insurance regulators have found companies including Assurant Inc. and QBE Insurance Group Ltd. overcharged borrowers for hazard coverage. In some cases, the regulators found prices may have been increased because of arrangements in which the insurers paid servicers to steer them business.

Borrowers who filed class-action lawsuits against insurers for excessive fees have recouped at least $674 million so far, and Fannie Mae and Freddie Mac “may have been harmed in the same manner,” the report said.

The FHFA, the regulator of Washington-based Fannie Mae and Freddie Mac, of McLean, Virginia, last year ordered the two companies to bar servicers from receiving payments related to lender-placed insurance.

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