I would definately take it a little farther than just talking to their father. You might want to take them in for a doctor's visit. Just to make sure anything more serious has not occurred. Keep us posted!
No you are definitely not overreacting sexual assault is serious business and must be dealt with immediately. Perhaps you could first ask your children (without letting them know that you are worried) about what happens when they are with their father and if they describe any indecent behaviour, I'd seek advice from authorities. Good luck!
No, you are not over reacting, but you must be careful how you approach handling it. Do you think the problem may be with your children's Dad/with this boy or even with them both? If you are supremely confident it is NOT with their Dad then I would most certainly discuss it with him, after all he is the one inviting this other boy into his house and he needs to know so it can be stopped (there is also an issue with this boy's behaviour ~ after all he is also a minor and therefore a 'victim'. To do nothing is an offence in itself so you must log everything, times dates etc. but get your daughters out of there and protect them first. Talk to them but do not put words into their mouth (Ask what sort of things they like to do at their dad's house, is there anything they do not like?) If you have any doubts about the childrens dad in all of this you must bring in an outside agency to help you to deal with it. Very good luck.