Hazard Insurers May Face Suit Over Fees to Fannie-Freddie

The regulator of Fannie Mae (FNMA) and Freddie Mac will consider suing insurers that charged excessive fees for hazard coverage paid by the two government-owned mortgage companies.

Fannie Mae and Freddie Mac (FMCC) could have overpaid about $158 million in 2012 alone for lender-placed insurance, according to the report released today 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. (AIZ) and QBE Insurance Group Ltd. (QBIEY) 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’ Suits

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.

Robert Byrd, a spokesman for Assurant, said the company was reviewing the Inspector General’s report.

“Protecting homeowners and investors with lender-placed insurance is a commitment we share with the FHFA and the Inspector General,” Byrd said in an e-mailed statement. “Our role, and consistent practice, has been to make certain insurance is appropriately in place as required by the terms of the mortgage, with approved rates and within applicable regulations.”

Deidra Parrish Williams, a spokeswoman for QBE, did not immediately respond to a telephone call seeking comment.

The FHFA last year ordered the two companies to bar servicers from receiving payments related to lender-placed insurance.

To contact the reporter on this story: Clea Benson in Washington at cbenson20@bloomberg.net

To contact the editors responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net Anthony Gnoffo

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