Government may sue mortgage servicers over inflated 'force-placed insurance' fees
WASHINGTON — The government is considering suing banks and other mortgage servicers over alleged insurance kickbacks that may have cost government-controlled mortgage companies Fannie Mae and Freddie Mac hundreds of millions, according to an internal federal report.
The agency responsible for guarding the mortgage giants' finances told its inspector general's office that it will decide over the next year whether to sue.
Fannie Mae and Freddie Mac, which have been under the agency's conservatorship since 2008, lost an estimated $168 million from the fees in 2012 alone, according to the report.
The Federal Housing Finance Agency did not accept that figure. But the agency said in response to the report that it “does not object” to the recommendation that it consider suing.
The FHFA barred banks and other mortgage servicers from collecting payments from insurers on June 1. But the agency does not normally discuss prospective litigation and has not previously indicated that it might consider suing over past misbehavior.
Should the agency decide to sue, the cases could reopen a controversy over how the biggest banks profited from what is known as “force-placed insurance.”
This high-cost version of property insurance protects the homes of uninsured borrowers. Banks typically buy it when a borrower falls behind on mortgage and insurance payments.
After the 2008 housing bust, force-placed insurance ballooned into a $1 billion-a-year industry.
According to a 2012 investigation by New York's Department of Financial Services and private lawsuits, large banks and insurers colluded to inflate the price of force-placed insurance and split the profits.
Insurers paid banks for referring business. Struggling homeowners and mortgage investors such as Fannie Mae and Freddie Mac bore the cost in the form of higher insurance premiums, often many times the price of normal homeowners insurance.
Because insurance kickbacks are illegal, major banks and insurers allegedly contrived to mask the payments as legitimate business transactions.
The FHFA inspector general's report did not name specific institutions. But some banks, including JPMorgan Chase, Wells Fargo and Citigroup, set up insurance agencies to accept supposed commissions from the two dominant force-placed insurers, Assurant and QBE.
But as New York and private plaintiff's attorneys separately uncovered, these bank-owned insurance agencies were little more than empty shells.
In one example, JPMorgan's employees stated in court documents that a bank-owned insurance agency did not employ a single insurance agent. In other instances, insurers rewarded banks through generous reinsurance deals or simple, lump-sum multimillion-dollar payments, the state found.
In the wake of New York's investigation, other state probes and private suits, many of the largest mortgage servicers, including JPMorgan, Wells Fargo and Citigroup, renounced commissions in 2012 and 2013.
Those banks and other mortgage servicers that might be subject to such suits declined to comment or did not immediately respond to telephone calls and email messages seeking comment on the threat of litigation.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- EDMC reaches debt-restructuring deal with creditors
- 2 top technology officers leave UPMC
- DQE Communication inks data deal with Iron Mountain
- Highmark denies premiums in federal insurance marketplaces affected by level of competition
- Burger King to buy Tim Hortons for $11B, move headquarters to Canada
- American, US Airways will stop listing on Orbitz
- Study: Consumer confidence near 7-year high
- Feds close probe into Camry hybrid brake problems
- Experts divided on Yellen strategy
- U.S. credit card late payments down in 2Q
- S&P 500 closes above 2,000 for the 1st time