Bank of America Document Leaks Allege Insurance Scams
By ABIGAIL FIELD
March 14, 2011 "Daily Finance"-- At one minute past midnight on Monday morning, a hacker collective released a set of emails on the website BankofAmericaSuck.
While all the allegations in the leaked documents involve Bank of America (BAC) -- through a soon to be ex-subsidiary called Balboa Insurance -- they also implicate many other big banks that are clients of Balboa, including: "GMAC, Aurora Loan Services [a subsidiary of Lehman Bros Holdings], IndyMac Federal Bank [a subsidiary of OneWest Bank], Saxon, HSBC, PennyMac [a collection agency started by former Countrywide Home Loans executive Stan Kurland after CHL and Balboa were sold to BAC], Downey Savings and Loans, Financial Freedom, Select Portfolio Services, Wells Fargo/Wachovia and [BofA]."
Note: Unless otherwise linked and stated without caveat, all the information in this article comes from the documents posted at the site.
Who Is the Anonymous Leaker?
The leaker claims to be a former seven-year employee of Balboa Insurance -- first, when it was part of Countrywide and then under Bank of America when it took over Countrywide -- who alleges that he was persecuted by BofA, labeled a terrorist, and had his career destroyed. Much of the information on the site is a Q&A with the leaker, although one email chain is included.
Perhaps realizing credibility could be an issue, the Q&A focuses on the leaker's self-reported motivation and employment experience. The leaker essentially says he has nothing left to lose -- BofA has already taken it all away -- plus he wants to set the record straight.
So force-placed insurance involves grossly inflated premiums, something the leaker also reported. And the servicer can simply decide not to use a borrower's money that is specifically set aside in escrow to pay the insurance premium for the existing insurance.
Why the Scam Works
When the borrower experiences force-placed insurance, it is his servicer that is the one buying the insurance. The leaker's first big revelation -- at least to industry outsiders -- is that only a handful of companies do this for many servicers. So if the insurance tracking and purchasing is done by an insurance company like Balboa, why do borrowers think their lenders are doing it? The employees of Balboa Insurance falsely present themselves as employees of the servicer when dealing with borrowers:
Horowitz seemed to find the same situation. He noted that when a borrower's attorney tried to investigate a force-placed policy, he discovered that:
A Different Kind of Assembly Line
One of the hallmarks of the foreclosure scandals is how much of the problem was caused by outsourcing relatively high-level functions to companies that minimize costs by industrializing processes that really aren't amenable to that treatment. One small example is preparing court filings like affidavits of indebtedness or assignments of mortgage.
By using an assembly-line system of blank-fillers, signers, notarizers, and witnessers, document creation became very efficient, but also flawed -- both legally and substantively. The industrialization of the paperwork was driven by incentives and disguised by having the single-task completers act in the name of the various servicers, rather than their true employers.
According to the leaker, force-placed insurance works precisely the same way. The processes within Balboa have been industrialized such that people are only doing one step of a multi-step process, over and over, and never see the full picture. Processing speed is a focus and is financially rewarded. The bonuses require people to process 200 to 2,000 loans per day, depending on the job function.
And even though having Balboa do the work for the various servicers is in itself a type of outsourcing, Balboa reduces costs further by outsourcing work to SPi in the Philippines and MphasiS in India, according to the leaker. (Homeowners I've spoken with have gotten calls in the name of their servicers from such countries, so the leaker's explanation of this is very plausible to me.)
The one email chain that is included in the leak reflects the dynamics that result in such a set up. The chain describes employees of BofA/Balboa trying to hide the fact that they sent out erroneous letters relating to some 80 GMAC loans by delinking the letters from the loan files. Even though concern was expressed in the email chain that such delinking would be problematic from an audit perspective, it was authorized.
Fixing the Wrong Mistakes
Another dynamic that results from the cost-cutting focus of the system, according to the leaker, is this: A lot of effort is spent fighting over trivial errors by the foreign data entry companies because proving such errors results in big savings to Balboa. The leaker was not, however, authorized to spend money to fix more substantial problems:
The leaker makes this claim without supplying an email to back it up. It's perhaps worth noting, however, that fabricating letters to facilitate a foreclosure is a type of document fraud that has shown up in a Countrywide-turned-BofA foreclosure case in Pennsylvania, so the allegation sounds plausible to me.
It would certainly be provable/disprovable by subpoenaing documents. But I have little hope of that happening. Gretchen Morgenson reports in the New York Times that the attorneys general did not investigate the servicers before they created their proposed settlement of the mortgage mess, relying instead on the many, many complaints their offices received from borrowers.
Talk to the Waitresses and Bartenders
A rich set of future sources, according to leaker, are the drunken BofA employees and the waitresses and bartenders who serve them at the happy hour spots near BofA processing centers. Leaker claims they all have many stories to tell. I'm not sure where the nearest one of those to me is, but I'll look into it. As should you.
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