When the Federal Housing Finance Agency hired Charles Landgraf to advise it on force-placed insurance, he already had some familiarity with the issues. He'd been lobbying the agency on those issues for a whole year.
Landgraf — a partner and veteran insurance lobbyist with the Washington law firm Arnold & Porter LLP — represents the interests of Lloyd's of London on several topics, among them "action on lender-placed insurance," which is another term for force-placed coverage. Federal lobbying records show that Lloyd's paid Arnold & Porter $950,000 for Landgraf's work over the last year.
Landgraf remains registered as an active lobbyist on force-placed insurance. He did not return phone calls and emails, and the FHFA offered only a brief emailed statement.
"Mr. Landgraf provides technical expertise to FHFA's Office of General Counsel on conservatorship issues," said the FHFA general counsel Alfred Pollard, who is himself a former senior lobbyist for the Financial Services Roundtable. "Both FHFA and his law firm took appropriate steps, in line with established legal practice, to assure no conflicts exist."
Two sources familiar with Landgraf's work called the FHFA's description misleading. Landgraf has played a key early role in coordinating Fannie Mae and Freddie Mac's actions on force-placed insurance, they say.
"The FHFA presented him as being their outside expert," says one person who asked for anonymity to avoid angering the FHFA.
Consumer advocates and lobbying experts called Landgraf's selection as a senior consultant bizarre and inherently problematic.
"I have never seen this before," says Lee Drutman, a Johns Hopkins political science professor and Sunlight Foundation senior fellow. "If you were the government, why would you hire someone who is taking money from a private client on the issue?"
The force-placed market was an obscure corner of the insurance market before the housing bust, but it has become increasingly controversial amid allegations that it is rife with price gouging and illegal kickbacks. Banks that service home mortgages are supposed to buy force-placed coverage as a way to protect investors when homeowners allow their standard policies to lapse. But state regulators and consumer advocates have repeatedly alleged that banks collude with insurers to inflate the price of force-placed coverage, split the profits and leave homeowners or investors with the bills.
As the largest investor in the mortgage market, Fannie Mae devised a plan last year that would have ended those financial ties by buying insurance directly from underwriters. Documents obtained by American Banker show that Fannie expected the program to save hundreds of millions of dollars for homeowners and the government mortgage giant.
The FHFA signed off on Fannie's plans repeatedly. However, in the face of fierce opposition to Fannie's plan among banks and insurers, the federal agency abruptly killed Fannie's plan and declared that force-placed insurance needed further study.
Consumer advocacy groups alleged at the time that the FHFA's action reflected, in one advocate's words, "incompetence or corruption." Following heavy criticism, the FHFA proposed banning banks from collecting commissions and from reinsuring policies. But the agency has not yet taken a stance on bigger-picture reforms.
"This is a broken market, full of kickbacks doing damage to both homeowners and investors," says Ira Rheingold, one of several consumer advocates who spoke at the FHFA's closed-door meetings last week. "Seeing the FHFA bring in someone like [Landgraf] makes me very skeptical that the FHFA can do the right thing."
The FHFA did not respond to questions about when Landgraf was hired, what he is being paid, or why it believes his work does not pose a conflict of interest.
During closed-door meetings that the FHFA held on force-placed insurance last week, Landgraf spent much of the time chatting with Pollard, say sources who attended the event.
A review of Landgraf's past work suggests he is a passionate advocate for the insurance industry. His speaker biography for a recent conference says he is "widely considered one of the top insurance lobbyists in Washington."
Landgraf has been a staunch opponent of federal involvement in insurance regulation. In a 2010 "state of the industry" presentation posted online, he warned of "Creeping Governmental/Societal Restrictions" on insurance and said, "Dangers exist if [the] feds get their nose under the tent."
The insurance industry has fought in the past to keep oversight largely the purview of state regulators. Consumer advocates have argued that this structure creates a poorly functioning regulatory patchwork, overseen by often weak state authorities, and is at odds with the federal oversight given to other financial products.