Federal housing regulators are being urged to sue insurers andmortgage servicers over alleged overcharging for force-placedinsurance on troubled homeowners during the housing crisis.

The report to the Federal Housing Finance Agency (FHFA) by itsOffice of Inspector General (OIG) estimates Fannie and Freddie tohave overpaid for insuring properties where the borrower was indefault by $158 million in 2012 alone.

Rep. Maxine Waters, D-Calif., ranking minority member of theHouse Financial Services Committee, lauded the report, calling theoverpayment estimate a “staggering figure” and saying it“represents direct losses borne by the taxpayer.”

Waters adds, “Given the enormity of these overpayments, the FHFAshould take steps to hold any and all wrongdoers accountable.”

The two major players in the industry are Assurant andQBE—through its own operations and through its acquisition ofBalboa from Bank America in 2011. BankAmerica acquired it as partof its acquisition of Countrywide in 2008.

Analysts view the report with limited dismay. Together, Assurantand QBE control 90% of the force-placed market, analystsestimate.

Robert Byrd, senior director, communications for Assurant'sSpecialty Property unit, responds, “Our role, and consistentpractice, has been to make certain insurance is appropriately inplace as required by the terms of the mortgage, with approved ratesand within applicable regulations.

“Like others in the industry, we are reviewing the InspectorGeneral's report and are committed to continued dialogue with theFHFA,” Byrd says. John Nadel, an analyst at Sterne Agee & Leachin New York says in an investment note this morning that, “Giventhat Assurant controls over two-thirds of the lender-placed market,it's not difficult to assume a settlement could be material [to thecompany].”

But, Nadel says, given the improvement in the housing market,the FPI business is going to fade anyway, and he notes Assurantplans to sustain its earnings growth in the future by turning itsattention to acquisitions.

The report says the $157 million figure was from “excessivelypriced” forced-placed coverage. It was based on an analysisconducted by a state-insurance regulator, the Inspector Generalsaid.

“We recommend that FHFA assess the merits of litigation by the[government-sponsored enterprises] against their servicers and[FPI] providers to remedy potential damages caused by past abusesin the [FPI] market and, then, take appropriate action in thisregard,” the report says.

The report is the latest blow to the FPI market. States,especially New York, California and Florida, are cracking down invarious ways on the FPI product, including settlements with majorplayers and caps on pricing of FPI.

Furthermore, “dozens of force-placed insurance class-actionlawsuits [are] being litigated across the country,” according tothe newsletter, Top Class Actions.

In 2012 and 2013, New York, Florida and California accusedAssurant and QBE, including Balboa, of charging excessive LPI ratesand began to enter into consent orders to settle theclaims.

Last year, for example, New York's Department of FinancialServices assessed Assurant and QBE a total of $24 million in finesas a result of settlement in which the two firms agreed tosubstantively change their rate policies.

In Florida and California, the companies were forced to lowertheir rates after the states found that the FPI rates did notcomply with state law.

Besides Assurant, QBE and its Balboa subsidiaries, regulatoryactions involved such banks as MetLife Home Loan, Wells Fargo,HSBC, J.P. Morgan, BankAmerica and Citibank.

Ground zero for the lawsuits is the Federal District Court inMiami. A settlement in February against J.P. Morgan involving up to1.3 million homeowners was estimated to be worth $300 million, withlawyers expected to get $20 million.