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» VISIT US ONLINE @ DSNEWS.COM 43 LEGAL ACTION POSSIBLE FOR EXCESSIVE LENDER-PLACED INSURANCE RATES In 2012, lender-placed insurance issues cost Fannie Mae and Freddie Mac a combined $360 million, and now the federal government may take legal action against servicers for charging ex- cessive LPI rates, according to a report released at the end of June by the Federal Housing Finance Agency's Office of the Inspector General. e report comes on the heels of several lawsuits—most of which have been settled out of court and for substantial amounts of money— that borrowers have filed against the nation's top lenders in the past few years. Wells Fargo and QBE, for example, settled a class-action suit in Florida last spring for $19 million and agreed to reimburse or credit affected borrowers 25 percent of any LPI premiums they assessed. Last September, JPMorgan Chase and Assur- ant settled with a nationwide class of borrowers for $300 million and agreed to reimburse or credit affected borrowers 12.5 percent of any LPI pre- miums they assessed. And in February, Citibank and a class of borrowers agreed to a $95 million settlement in which the lender also agreed to re- imburse or credit affected borrowers 12.5 percent. e trouble itself stems from GSE-serviced mortgage holders defaulting on Fannie/Freddie- required coverage. Fannie and Freddie's servicers are required to ensure that their client homeown- ers maintain hazard insurance for the life of the mortgage. ese servicers often outsource the tracking of this insurance and the payments to specialty insurers. When an insurer identifies a payment lapse, it initiates LPI coverage, which homeowners are expected to maintain. However, not all do, and in the event of a foreclosure Fannie and Freddie get stuck with the bill. In 2012 and 2013, insurance regulators in several states determined that LPI rates in their respective states were excessive and may have been driven up by profit-sharing arrangements under which servicers were paid to steer business toward LPI providers in the form of commission structures and reinsurance deals. is, of course, led to the class-action suits that have so far amounted to $674 million in settlement payments. Last November, the FHFA sought to mitigate financial harm to Fannie and Freddie by directing them to prohibit their servicers from receiving LPI-related commissions and entering into reinsurance arrangements with LPI providers. But those new rules did not take effect until June 1 and the grand total for how much the GSE's are out due to LPI-related issues is not yet clear. e FHFA is still considering whether Fan- nie and Freddie should pursue litigation against servicers and LPI providers to recover potential damages that the enterprises have lost cleaning up LPI-related messes. ZOMBIE PROPERTIES CONTINUE TO LINGER NATIONWIDE Zombie properties serve as a lingering re- minder of a housing market still in the midst of self-correction. ey serve as a legacy of the recent housing crisis, a byproduct of lengthy foreclosure timelines and mercurial state foreclosure statutes. RealtyTrac recently released a nationwide analysis of zombie properties, examining both states and institu- tions that have the most zombie properties. e company considers a "zombie prop- erty" to be any property that has "started the foreclosure process but never been fore- closed, and the homeowner has vacated the property." RealtyTrac found that nationally, zombie properties totaled 141,406 in the second quarter of 2014, accounting for 21 percent of properties in foreclosure. All told, one in every five foreclosures has been vacated by the homeowner before the foreclosure has been completed. Sequentially, zombie properties have been declining. Zombie properties are down 7 percent from roughly 152,000 in Q1 2014 and are down 16 percent from approximately 167,000 in Q2 2013. However, not all states are seeing a drop in the number of zombie properties—24 states and the District of Columbia saw an increase from the previous quarter. States experiencing the largest gain in zombie properties from Q2 2013 include Mississippi (2,450 percent), the District of Columbia (300 percent), Wyoming (100 percent), New Jersey (58 percent), and Delaware (56 percent). Florida accounted for more than one- third of all zombie foreclosures with 48,630. Rounding out the top five states were New York (12,666), New Jersey (12,170), Illinois (11,925), and Ohio (7,390). Not surprisingly, states with some of the most zombie properties also had some of the longest average times that homes have been foreclosed: New York (418 days), Florida (411 days), New Jersey (378 days), Illinois (272 days), and Hawaii (249 days). Financial institutions listed as the benefi- ciary on the foreclosure documents with the most zombie foreclosures were Wells Fargo (18,695), Bank of America (15,175), Chase (10,312), and US BankCorp (10,141).

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