Mortgage companies, or financial institutions that lend funds for purchases of residential and business real estate, may come under fire during any mortgage transaction due to errors made, or other circumstances resulting in a claim. There should be checks and balances in place to discover and fix errors that are made in a timely manner.
The background and training of all employees engaged in professional duties should be thorough and continuous. In servicing the need of your clients, your company must verify that all mortgaged properties have in place some form of hazard insurance. A policy for errors and omissions, available under insurance for mortgage brokers, will provide blanket coverage for any inadvertent omission that is made.
In addition, mortgage companies often offer escrow fund handling and other financial activities as well. Directors and officers have been sued when funds from any of these transactions are mismanaged. Officers should be quite knowledgeable about the mortgage lending business, understanding rules and regulations, and able to operate competitively while maintaining profitability. Only individuals able to oversee ongoing operations effectively should be placed in such a position.
Directors and officers exposure for mortgage companies may be substantial due to competing priorities of numerous stakeholders such as stockholders, bondholders, depositors, employees and regulators. Directors and officers are more likely to be sued for results of their decisions in times of economic downturn and well-publicized excesses within the financial services industry. In other words, when things are going badly the likelihood of a lawsuit being filed becomes more substantial.
Other coverages to consider
The minimum requirement of insurance policies that any mortgage brokerage should have includes the following:
- General liability
- Errors & omissions (Professional Liability)
- Property insurance
- Hired and non-owned auto (full commercial auto if vehicles owned)
- Commercial crime coverage
- Business income with extra expense
- Workers compensation
Certainly all of the policies may not be required, depending on the size of your operations. Purchase any insurance for mortgage brokers that could leave you at risk if it is not part of your insurance portfolio.