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.

As to the leaker's credibility, Naked Capitalism's Yves Smith notes that he makes a number of typos and also uses some terms incorrectly, saying "lienholder" when "servicer" is clearly meant. Nonetheless, Smith finds the allegations credible. So do I.

Importantly, the information is not from the same database that Wikileaks reportedly has, as the leaker offers to decode that information if it's made available to him.

As the documents are labeled "Ex Bank of America Employee Can Prove Mortgage Fraud 1," but the information thus-far revealed doesn't really involve mortgage fraud, perhaps a "Part 2" will include such documents, translated Wikileaks or otherwise.

Force-Placed Insurance Scams

The leaker's information relates primarily to "force-placed insurance" -- insurance taken out by a mortgage servicer on a home when the homeowner doesn't maintain the level of insurance required by the loan -- and the role of Balboa Insurance in that industry.

Force-placed insurance is such a problem that the proposed bank settlement on improper foreclosure and loan-servicing practices currently in the work contains many "shall nots" regarding it, including such things as: Thou shalt not buy force-placed insurance, charging a borrower and taking borrower's money from escrow to pay for it, when borrower already has an insurance policy in place.

Felix Salmon details the kind of scams involved, discussing reporting by Jeff Horowitz at American Banker, including these examples:
"A homeowner had a $4,000 insurance policy, which was paid by the loan servicer, Everbank, from an escrow account. But Everbank allegedly let that insurance policy lapse, allowing it to replace the policy with a different policy, this one costing more than $33,000. The insurer, a subsidiary of Assurant [the market leader ahead of Balboa], then paid Everbank a $7,100 kickback for giving it such a lucrative policy. And, writes Horwitz, 'left the door open to further compensation' down the road."
"Horwitz has found one case where an $80,000 property was being insured for $10,000 a year, and also notes that at Assurant, 'the unit handling force-placed insurance has accounted for $811 million of its $879 million in profits during the last two years.'"
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:
"When you call in to customer service, for say, GMAC, you're not actually speaking to a GMAC employee. You're actually speaking to a Bank of America associate working for Balboa Insurance who is required by their business to business contract with GMAC to state that they are, in fact, an employee of GMAC. The reasoning is that if you do not realize you're speaking to a Bank of America/Balboa Insurance employee, you have no reason to question the validity of the information you are receiving from them [about the price of the force-placed policy]. If you call your insurance agent and ask them for the lienholder information for your GMAC/Wells Fargo/etc lien (home or auto) you will be provided with their name, but the mailing address will be a PO Box at one of Balboa's 3 main tracking locations (Moon Township/Coreaopolis, PA, Dallas/Ft Worth, TX, or Phoenix/Chandler, AZ)."
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:
"While the people [responding to requests about the force-placed insurance] there claimed to represent the servicer, they were operating out of an office belonging to a force-placed policy insurer since acquired by QBE Insurance Group.

[The attorney] didn't understand why the insurer would be speaking on behalf of the servicer. But shortly after he began asking questions about the relationship between servicer and insurer, the case settled. Confidentially. At the insurer's request. . . ."
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:
"If I bring up a system glitch that's affecting 10,000 loans held by real human beings in the real world, in the system, that's a $25,000 project to fix that only truly affects .001% of the loans on paper (discussing numbers like that in a dozen meetings only to have the initiative turned down is the real waste). If I can drop one of our offshore vendors' quality below a certain level, however, than I've just saved the company $250,000."

Another Allegation

An unrelated and unsubstantiated allegation that is leveled almost incidentally must also be mentioned. The leaker claims that Balboa/Countrywide:
"knowingly hid foreclosure information from federal auditors during the takeovers of IndyMac Federal (a subsidiary of OneWest) and Aurora Loan Services (a subsidiary of Lehman Bros Holdings), falsifying loan documentation in order to proceed with foreclosures by fixing letter cycles in the system, reporting incorrect volumes to all of their lenders and to the federal auditors to avoid fines for falling behind on Loan Modifications, purposely and knowingly adjusting premiums for REO (Real Estate Owned) insurance for their corporate clients while denying forbearance for individual borrowers, etc, etc, etc."
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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March 22 2012 at 5:04 PM Report abuse rate up rate down Reply

Question: does anyone know if it is leagle for a mortgage company to outsource a homeowners escrow accout to a third party for payment of insurances with out the homeowner knowing about them case in point GMAC is outsourcing to balboa

March 22 2012 at 5:04 PM Report abuse rate up rate down Reply

I am handling cases for victims. Please call my cell: 201-926-9200 and write me at Jos. Santoli, Esq.

January 18 2012 at 8:14 PM Report abuse rate up rate down Reply

LOL... This guy is absolutely correct in saying BOA came after him with all they got in terms of HR and Executive conmands at the helm of there business practices. Let me be very clear on one aspect of the Bank called BOA. They are not about customers though they shout that at top of their lungs and they are not about their Employees or Associates either and their Code of Ethics might tell all to be ethical, it is meant for only people below Execs. 7-Years this guy survived because whatever countrywide did in Loan Origination, their HR was more powerful force with ER as seperate domain and did not weigh in Executive power while metting decisions on complains. Bank Of America is going to Implode... oh Yeah they will. It is a f**king management circus going on there. How do you explain this fiasco of 5-Dollars charge on Debit Cards... jeez and the worst part guys, non of the morons have any freaking idea of where they are headed. And more worst part is every moron who gave or is giving ideas which are failing all over is staying put and they are loosing good guys in droves like this fellow probably who are being nitpicked and trashed because they have the guts to speak out against those Morons. Brian Moynihan should be ashamed of the kind of people he is calling Leaders within his Organization and about his own leadership. Though Merryl and legacy Bank might survive , I bet Banks Mortgage process and systems are going to catapult sooner rather then later. It is a Mess getting messier everyday due to rudderless, politically divided leadership at the helm.

November 02 2011 at 6:19 PM Report abuse rate up rate down Reply
L R Adams

BOA faux pas and conniving behavior is going to be the death of them. Washington has looked the other way hoping they will get things turned around. The cats are getting out of the bag. Some of the participants are starting get scared. BOA is going to implode* no one wants jail time. They can only hold things together for so long. The baggage is starting to get bigger and more poisonous. If Washington does not make a move or they will be severely criticized for looking the other way. This debacle could make *Fanny and Freddy* look like small potatoes.

March 16 2011 at 8:36 AM Report abuse rate up rate down Reply
1 reply to L R Adams's comment

Of all the people I've spoken with at Bank of America over the last year and a half, I'm convinced none of them could find their own big butt with both hands. As for Washington doing something about it - do you really think anyone in Washington cares anything about anyone but themselves? I don't. How can you tell if a politician is lying? His mouth is moving.

March 25 2011 at 8:43 PM Report abuse rate up rate down Reply

Obiously I've been reading these type of concerning nor aggrivation consumer people are hesitating about, thats your guys bad inquiries your people are meditating about. You probably are/ or have some other hud and renting the
other Get rid of the one renting keep one in the depression struggking. Know I realize & comprehend why we're in it this long

March 16 2011 at 12:44 AM Report abuse rate up rate down Reply

I am an atty in MA with 40% of my practice time devoted to foreclsoure prevention. I can butress the argument thgat ome of the named parties have used force-placed (now called "collateral protection") insurance on my clients properties. I have preented such evidence in one case to the Fed Dist Ct. The offender there was RBS Citizens d/b/a Citizens Bank. That ended in an eviction - my client was non-compliant with the compromise/settlement at which we arrived. ANother case involved a post-foreclosure claim against HSBC. For a house that had a fair market value of <$100,000, an ultimately sold at auction for $39,000, HSBC placed insurance on the property and sent my clients a bill for $18,000. We surrendered the house as my clients were able to move to a better location for less than the cost of fighting with HSBC. The examples go on and on. I find the report CREDIBLE. Richard Isacoff, twitter: @riisacoff

March 15 2011 at 8:27 AM Report abuse rate up rate down Reply
1 reply to riisacoff's comment

I am an atty in MA with 40% of my practice time devoted to foreclsoure prevention. I can butress the argument thgt one of the named parties has used force-placed (now called "collateral protection") insurance on my clients' properties. I have presented such evidence in one case to the Fed Dist Ct. The offender there was RBS Citizens d/b/a Citizens Bank. That ended in an eviction - my client was non-compliant with the compromise/settlement at which we arrived. Another case involved a post-foreclosure claim against HSBC. For a house that had a fair market value of <$100,000, and ultimately sold at auction for $39,000, HSBC placed insurance on the property and sent my clients a bill for >$18,000. We surrendered the house as my clients were able to move to a better location for less than the cost of fighting with HSBC. The examples go on and on. I find the report CREDIBLE. Richard Isacoff., twitter: @riisacoff

See full article from DailyFinance:

March 15 2011 at 8:33 AM Report abuse rate up rate down Reply

BOA did this to us here in Florida also. But they also made a $20,000 claim on the insurance, collected the money, and now is nowhere to be found! All while the policies were in my name. They are Criminals. There has to be a lawyer with enough guts to go aafter them

March 15 2011 at 7:46 AM Report abuse +1 rate up rate down Reply

Capital One Bank did the Force-placed insurance scam on my property as well. They charged me for insurance, taking money out of the property tax escrow account without even notifying me, for the "insurance" cost. When I notice the charges against me escrow account on my statement, I called asking why. The Capital One Rep stated I didn't have insurance coverage as required for the loan. I stated that I have the same insurance company, with no change in coverage, for the last six years. The Capital One's Rep's response "Oh...we'll then credit your escrow account, sorry for the error". Lesson learned....don't trust the banks and check your statement for fraudulent charges.

March 15 2011 at 7:01 AM Report abuse rate up rate down Reply

and once again what is the real surprise here, greed begets more greed. if you steal $10 from a rich man you go to jail, but if you steal billions from poor men you will only get a slap on the wrist, if that...

March 15 2011 at 6:15 AM Report abuse +2 rate up rate down Reply