The Federal Housing Finance Agency’s Inspector General said the agency should sue forced-placed insurance companies and large banks for inflating prices and causing losses for Fannie Mae and Freddie Mac, Mortgage Servicing News reported June 25.
In 2012 alone, Fannie and Freddie lost $158 million from reimbursing servicers for overpriced forced-placed insurance, the Inspector General’s June 25 report noted. Last year, the two government-sponsored enterprises reimbursed $327 million and $587 million from 2009 to 2011.
Servicers or creditors purchase forced-placed insurance when borrowers fail to maintain adequate hazard insurance coverage for their homes. Allegedly, banks have received kickbacks on forced placed insurance from insurers.
The report recommended that the FHFA consider suing banks and insurers to recover damages. The agency has said it will make an assessment and determine over the course of the next year whether or not to sue.
Insurers Assurant Inc. and QBE Holdings write more than 90 percent of forced-placed insurance plans and have charged the GSEs premiums 79 percent above what is considered reasonable to cover claims, the Inspector General’s report claimed, Mortgage Servicing News reported.
Wells Fargo, JPMorgan Chase, Citigroup, Assurant and QBE have agreed to pay $674 million in settlements with borrowers since 2011. Since then, the insurers have been forced to reduce premiums.
The FHFA has not sought to litigate, however, even though the Inspector General’s report noted, “Our analysis indicates that such litigation could result in financial recoveries for the enterprises. The potential recovery from lender placed insurance-related litigation may outweigh its costs,” Mortgage Servicing News reported.