Mortgage Insurer Side Deals Raw Ones for Fannie and Freddie

"Over the last few months, insurers have begun cutting settlements with lenders, accepting cash payments in return for not investigating or rescinding coverage on mortgages that were the product of sloppy or fraudulent underwriting.

Though such settlements make good business sense for lender and insurer alike, they threaten to shift further losses to the government. Fannie Mae and Freddie Mac own $160 billion of insurance on low-down-payment mortgages, and the federal wards have long relied on the nimble insurers as their first line of defense in detecting flawed loans that can be forced back upon the lenders that produced them."