Bank of America (BAC) Exposed for Insurance Fraud by OperationLeakS?

According to alleged fraud documents released by OperationLeakS referencing Bank of America (NYSE:BAC) as possibly participating in Force-Placed Insurance scams.

Force-Placed insurance refers to when homeowners start to miss payments on their mortgage, in which case servicers will stop forwarding insurance payments (which have been held in escrow) to the insurance company on behalf of the borrower.

Seeking Alpha notes, "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."

"Moreover, there are many instances in which the force-placed insurance companies (like Balboa) have actually back-dated the insurance by up to nine 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 foreclosure 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."

While the explanation above is accurate, the so-called leak isn't as convincing as Wikileaks were, and until there is more information provided, my judgment will be held in check.

It takes more than one person having e-mails to make a case, and that will have to happen here in order for it to be considered legitimate.

Bank of America was trading at $14.12, down $0.26, or 1.81 percent, as of 1:47 PM EDT.




Source