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« TARP Bailout Still $123 Billion In The Red | Main | Guest Post From Dylan Ratigan: Rescue Choppers Or Corporate Jets? The Biggest Fraud Of All »

BofA Leak Exposes Possible Force-Placed Insurance Fraud

OperationLeakS has now released the first batch of Bank of America fraud documents.  What has been disseminated so far consists mostly of emails between the hacker group Anonymous and a former employee at Balboa Insurance Co. which was acquired by BofA with their acquisition of Countrywide.

Operation #BlackMonday

One thing to clear up about these documents is that they are NOT the same documents held by Wikileaks.  The documents just released by OperationLeakS Anonymous are mostly very recent emails and have nothing to do with the executive hard drive held by Wikileaks.  In fact, the Anonymous leaker says he would love to see what Wikileaks has and says he could probably get "all the dirt" within a week of gaining access to it.

So, what do the latest leaked emails reveal?  The most obvious thing is that Balboa/BofA employees were engaged in trying to hide original loan documents by erasing Document Tracking Numbers from scanned documents.  See here.

But the Balboa employee also appears to have information that would blow the lid off a number of Force-Placed Insurance scams that are highly questionable, probably illegal and most likely would expose companies like Bank of America to more suits by mortgage-backed securities investors.

When someone holds a mortgage, they are required to have adequate insurance for the property, but if they stop making the payments on their insurance policy, the lender may purchase insurance on the property on behalf of the borrower (to protect the lender) and are then allowed to charge the mortgage holder for that insurance.  This is called Force-Placed Insurance and usually it costs a great deal more than ordinary homeowners insurance because of the greater risks involved.  The forced insurance, it should be noted, protects the lender, but not the borrower.  This is standard practice in the mortgage industry, but sometimes things get a little murky.  In fact, they sometimes get downright dirty.

In many cases, when homeowners begin missing payments on their mortgage, servicers will stop forwarding insurance payments (which have been held in escrow) to the insurance company on behalf of the borrower.  This has occurred even when the borrower has paid enough into escrow to cover the insurance payment.  Nonetheless, this automatically kicks in the Force-Placed Insurance process.  The servicer will then purchase the insurance and charge the homeowner for it.  The insurance so purchased is always several times more costly than ordinary insurance, thus putting even more stress on the delinquent borrower, often driving them even more quickly into foreclosure.  American Banker discusses these problems here and here.

Moreover, there are many instances in which the force-placed insurance companies (like Balboa) have actually back-dated the insurance by up to 9 months and then charged the homeowner for insurance they didn't actually have and for which no claims will ever be filed because the covered period is in the past!  These sorts of practices may explain the unexplained charges that show up on mortgages for people who have missed a payment or two, but then are unable to understand why their outstanding balance is more than their original mortgage.  (There may be other explanations, but the force-placed insurance scam seems a likely candidate.)

It gets worse when you consider that many of these same insurance companies are known to give kickbacks to the servicer, or the servicing bank as the case may be, thereby incentivizing delinquencies (e.g. through HAMP), which can entail the lapse of homeowners insurance.  It also becomes clear that the interests of the servicer and the insurance company are aligned against the interests of both homeowners and investors.  This is because servicers in many cases are reimbursed for the insurance they purchase on behalf of borrowers out of the proceeds of forclosure sales, foreclosures which they helped bring about through overly expensive force-place insurance policies.  That is, the servicers get paid before investors and by over-charging for the insurance in the first place the servicers are able to extract even more money from the investors they are supposed to be working for.

Where the situation gets really interesting is when a bank like BofA actually owns the insurance company, as in the case of Balboa.  In this email, the Balboa employee appears to be saying that errors in tracking of mortgages were common, but that he had more incentive to blame outsourced clerical workers for errors, thereby reducing the fee Balboa paid to the other company for handling the paperwork, than he had incentive for actually preventing such errors in the first place:

It isn't clear what kind of "system glitch" the employee is referring to, but presumably it is a glitch related to lapsed insurance payments.  If it is the case that Balboa/BofA was knowingly allowing servicing errors to occur, so that they could then force-place insurance policies on borrowers, then that in itself could be a huge blow to BofA -- in addition to the perhaps related issue of trying to erase DTN's on scanned documents.

More analysis to follow.   Stay tuned.


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Reader Comments (16)

David Stockman piece calling B.S. on TARP...


First part reads like a Dr. Pitchfork highlight reel.
Mar 14, 2011 at 4:43 AM | Unregistered CommenterCheyenne
great link...thanks cheyenne...
Mar 14, 2011 at 11:45 AM | Registered CommenterDailyBail
I don't need to tell you about the 4 other new mortgage companies that "serviced" the Homeuser's wonderful new Alt A mortgage over the next two years, or the forced-placed insurance they all tried to obligate Joe and Sally to, along with the comedy of deceit involving faxes of insurance documentation not received and other fun experiences like that, but here is how it ends: The Homeusers are FUCKED.


I knew it between 2003 and 2007 while they were force-placingme, and I knew it even more in October 2010 when I wrote the above. Now we see the proof, once again, in all its miserable shameful splendor...
Mar 14, 2011 at 1:19 PM | Unregistered CommenterWil
Enjoyed that Stockman lecture, Cheyenne. Thanks for that.
Mar 14, 2011 at 4:43 PM | Registered CommenterDr. Pitchfork
This certainly explains all the complaints of constantly 'lost' paperwork from those applying for HAMP. If the application is deliberately divorced from the loan file in the data system, then the bank can claim that it never received the application and a quick data search will 'verify' that claim.
This allows the bank to eliminate pesky claims that slow down the profit flow and still comply with directives not to destroy documents.
"They were just misplaced - the dog ate 'em. Gee, too bad we didn't find these sooner."
It's a scam and a fraud, clearly. The challenge will be to find 12 people who can understand the ramifications of these kinds of schemings.
Mar 14, 2011 at 8:29 PM | Unregistered CommenterCarl Elderton
Not to put it too softly, Dr. P., but if I didn't know any better I'd think Stockman has read your shit before.

It's a good thing I don't know any better.
Mar 14, 2011 at 9:06 PM | Unregistered CommenterCheyenne
Yves Smith has her own post on this issue. Her explanations of how force-placed insurance can be fraudulent are probably more coherent than what I wrote at 2AM this morning. See here: http://www.nakedcapitalism.com/2011/03/wikileaks-whistleblower-charges-bofa-of-engaging-in-large-scale-force-placed-insurance-scheme-with-cooperation-of-servicers.html

Also, be sure to check out the last few comments on the thread -- three people corroborate exactly the type of double-dealing and "lost" insurance payments we discuss above. OperationLeakS needs to provide some context for the emails they posted, but if they are what they appear to be -- and especially if the leaker ever gets a chance to give evidence -- they are damning indeed.
Mar 14, 2011 at 9:32 PM | Registered CommenterDr. Pitchfork
Cheyenne, the thought occurred to me, too. But when you've got your facts straight, it makes sense that two honest brokers could use the same evidence, independent of one another, to make similar arguments. Stockman is also an expert in all this stuff. I just play one on the internets.
Mar 14, 2011 at 9:34 PM | Registered CommenterDr. Pitchfork
Fair enough, Dr. P. If he'd mentioned Minneapolis Fed.Res. Paper 666 I'd have cried foul.

Far better that this stuff is going somewhat mainstream as the electorate begins waking up.

And it is woke up and pissed off and waiting for a match...
Mar 14, 2011 at 9:56 PM | Unregistered CommenterCheyenne
Cheyenne, what do you make of this? Looks like it's on if Mr. Leaker has the goods:

James Andersen, Attorney says:
March 14, 2011 at 9:28 pm

If this person who leaked this story is interested in acting as an paid expert witness in a trial against Balboa and GMAC in Texas , please have them contact me at once.
James Andersen Attorney at Law
Houston Texas
Mar 14, 2011 at 11:15 PM | Registered CommenterDr. Pitchfork
excellent links...and my opinion is that stockman read pitchfork's previous work...i'm with cheyenne...
Mar 15, 2011 at 12:56 AM | Registered CommenterDailyBail
This is a huge scam not just with BoA. My wife and I recently discovered that it is fraud if the servicer/bank force places on the homeowner and has any other name on the policy than either the homeowner or the registered loan note holder at the courthouse. Our note holder papers were 13 years out of date and wrong at the courthouse. We filed at the BBB online and won back the forced placed money plus interest-6% per year. Now we are going after them for a scond policy. This is a huge opportunity to glean from the Mortgage Servicer as the attorneys are forced to supply you with all sorts of documentation. We even got a letter from the insurance attorney stating that our MS wasn't the holder of the note and that they had no idea who was, lol. All this costs the MS and the insurance companies out the anus in legal fees while it costs you nothing by going through the BBB. Also attack them on the 1099-A issue through the SEC and IRS. If any of the companies involved in your loan note haven't filed the 1099-A to show posession then it breaks the chain of ownership. If they company now claiming to own your note can't provide you with a 1099-A for both the seller and the buyer then it is SEC and IRS fraud, and they are bad about doing this so they don't have to pay taxes on ownership of your home. Remember "pass through" certificates. They actually should be called tax avoidance certificates and we the tax payers have to fund this scam too.
Mar 15, 2011 at 11:07 AM | Unregistered CommenterRoy BLizzard
These "financial services groups" a.k.a. fraudsters have financed the repeal of the regulations safeguarding public and taxpayers. They said they were going to "supervise themselves" and then melted down the economy, collected bonuses and now are hard at obstructing justice. Our very government is complicit, it is evident in the way SEC and Justice Department are p us sy-footing around the fat cats. The very fabric of our governance has been destroyed and more, bigger financial disasters await in the wings, unless we see to it that the justice is served.
"I hope we shall crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government to a trial by strength, and bid defiance to the laws of our country." - Thomas Jefferson once said. How fitting, how prophetic! How alarming that we failed to accomplish that!
At http://www.WallStreetClassAction.com we organize a class action against the banks, the ratings agencies and other financial institutions involved in staging the colossal securitization fraud and subsequently crashing the economy and resulting in over $5 Trillion in asset losses in the US alone.
We realize that our own government is effectively a captured entity, so no criminal indictments will be forthcoming. But WE THE PEOPLE will hold the fraudsters accountable. United we stand.
Mar 16, 2011 at 8:32 AM | Unregistered CommenterWallStreetClassAction.com
This is no surprise....Bank of America and the entire corporate banking world has been robbing the American public blind. Force Placed Insurance is just one of the myriad of scams...
May 30, 2011 at 3:41 PM | Unregistered CommenterForce Placed Insurance
PNC mortgage tries to do this to me every year to the tune of $3500 (4.5x the normal rate of insurance)..... Their method of implementing the fraud seems to be denying receiving any insurance paperwork from the consumer or insurance companies.. Plenty of money in escrow - never missed a payment - none of those problems. I tried to head problems off 3 weeks early last year in anticipation of more fraud attempts.. Called 2-3 times a week.. Sent faxes also went to the insurance company where joint phone calls and more faxes were sent... PNC denied receiving anything for 6 weeks. even when some of the follow up calls were handled by the same people talked to before. Trust me - never ever get a mortgage with PNC... Nothing is ever done in good faith. They only reluctantly removed their fraudulent insurance after I had provided fax confirmation receipts sent well in advance.. This year same thing refusing. Tomorrow, I'm going to try to go to the comptroller's office to talk to them and see if they'd be interested in working with me to set up a sting.
May 2, 2012 at 10:26 PM | Unregistered CommenterBill (Orlando, FL)
How about forced insurance by the bank, after they lost the mortgage to mortgage fraud, six years ago! My husband and I discovered that, when we had refinanced in 2004, that the bank forged mine and my husbands signatures to the mortgage document. The mortgage was avoided in July of 2007. They finally lost their appeal in the 6th US Circuit Court in January of 2012. We are now going for the judgments that were granted in that 2007 ruling and the house is in a horrible state, due to the fact that we were not able to make any repairs during litigation. I decided to look into the insurance that they had placed on the house and file a claim. The bank is the Named Insured...even though they don't have a mortgage. They have a note, but no collateral...and they may not have a note by the time we get done. It will be interesting what the insurance company thinks about a bank that claims interest in a property that they lost five years ago. How will it hurt us as the homeowners...this is being billed to us annually. Everything (including the note) refers to the mortgage for any legal language that tells us what our obligations are (were) and, um, that's right...it doesn't exist. Your thoughts?
Apr 7, 2013 at 11:42 AM | Unregistered CommenterSheryl Sutter

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