Mortgage Broker Insurance Policy Information
Mortgage Broker Insurance. Mortgage companies are financial institutions that lend funds for purchases of residential and business real estate. The mortgage is paid back over time with interest until the loan is paid off and the purchaser owns the property.
If the money is not paid back, the mortgage company can foreclose on the loan and sell the property to recoup their investment.
Mortgage companies earn income from interest charged on loans, profits from investments, and transaction fees. They also service escrow accounts, may be involved in real estate services and transactions, or broker and sell mortgage loans to other operations. Mortgage companies are subject to both federal and state regulation.
Mortgage brokers assist their customers acquire their own homes. Your clients depend on you to guide them from any complications that arise in the mortgage process and trust you to give them the best possible deal on their loans. If you make professional mistakes, your clients may sue your brokerage company for financial loss and hardship you caused.
Protect your brokerage company from potential risks as well as other business risks with mortgage broker insurance.
Mortgage broker insurance protects your loan business from lawsuits with rates as low as $37/mo. Get a fast quote and your certificate of insurance now.
Below are some answers to commonly asked mortgage broker insurance questions:
- What Is Mortgage Broker Insurance?
- How Much Does Mortgage Broker Insurance Cost?
- Why Do Mortgage Brokers Need Insurance?
- What Type Of Insurance Do Mortgage Brokers Need?
- What Does Mortgage Broker Insurance Cover & Pay For?
What Is Mortgage Broker Insurance?
Mortgage broker insurance is a type of insurance policy designed specifically for mortgage brokers and their businesses. This insurance provides financial protection for the mortgage broker and their clients in the event of a loss, liability, or lawsuit. This insurance can cover a range of risks, including errors and omissions, professional liability, cyber liability, general liability, and property damage. The goal of mortgage broker insurance is to protect the financial stability and reputation of the mortgage broker, as well as the assets of their clients.
How Much Does Mortgage Broker Insurance Cost?
The average price of a standard $1,000,000/$2,000,000 General Liability Insurance policy for small mortgage brokerages ranges from $37 to $59 per month based on location, size, payroll, sales and experience.
Why Do Mortgage Brokers Need Insurance?
As a mortgage broker, you provide advice and guidance to clients as they navigate the mortgage market. This role involves a significant level of responsibility and risk, including:
Professional liability: You may face claims from clients who believe you provided incorrect or inappropriate advice.
Errors and omissions: You could face legal action if you make mistakes in the documentation or processing of a loan.
Cyber liability: Your business may be vulnerable to data breaches, hacking, and other cyber attacks, which could compromise client information and lead to legal action.
Fidelity bonding: This insurance protects you against theft or embezzlement by employees.
Commercial general liability: This insurance covers you for property damage and third-party injuries that occur on your property.
By having insurance, mortgage brokers can protect themselves against these types of risks and ensure that they are able to continue providing valuable services to their clients.
What Type Of Insurance Do Mortgage Brokers Need?
Below is a list of the most commonly purchased insurance policies by mortgage brokers. These primary policies can be tailored to suit the needs of your mortgage brokerage business. That way, you end up with a customized mortgage broker insurance plan - with no unneeded coverage and no extra fees:
Professional Liability: Professional liability also know as errors and omissions (E&O) coverage protects mortgage brokers from claims made against them for negligence while in the process of providing their services. Even if you are the most careful broker, you can have allegations made against you which could leave you in a difficult situation financially if you are not protected.
Mortgage brokers may be sued as a result of advice on:
- Mortgage Brokering
- Finance Brokering
- Debt Management Services
- Mortgage Origination
- Mortgage Aggregation Services
General Liability: General liability will cover your firm for a variety of claims including bodily injury, property damage, personal injury, injury to a third party and other accidents that commonly arise when providing your services.
These accidents could be as simple as slipping on a wet floor or dropping your computer monitor when moving desks. When accidents happen mortgage broker insurance should cover it.
Workers Compensation: This provides insurance to employees who are injured when working on your firm. It provides wage replacement and medical benefits to them. In exchange for these benefits, the employee gives up his rights to sue you for the incident. State laws will vary, but most states require you to have workers compensation if you have employees.
Directors and Officers Liability: Corporate transparency and accountability are critical to your brokerage firms success. With regulatory mandates and shareholder activism making social media and headline news, each decision your directors and officers make can quickly be judged under the public microscope.
If a worst-case situation arises, your firm may face litigation as a direct result of your boards decisions. Directors and Officers Insurance will cover the legal costs to defend the individual directors and officers.
Commercial Property: Depending on your location, your brokerage firms office is exposed to many types of risks, including fire, flood, natural disasters, and extreme weather conditions like snowstorms or hail storms. Aside from taking necessary steps to protect your brokerage firm you should also be prepared for events you can't prevent. Do this by getting mortgage broker insurance.
A property policy covers buildings and personal property owned by your business. It also covers property owned by others that you use in your business. This way your buildings and contents are covered which reduces the loss of your business assets.
There are two types of commercial property insurance: all-risk and peril-specific. An all-risk policy will cover a large range of incidents except for those noted in the policy. A peril-specific policy will cover any incidents that are listed in the mortgage broker insurance policy.
Business Owners Policy (BOP): If you have a small business and don't want to buy all insurance coverages separately, you can opt for this package, which combines typical coverages into one standard package. It is offered at premiums lower than if each coverage was purchased separately.
Typically, BOPs consist of property, general liability, vehicles, business interruption and other types of coverages for risks common to brokerage businesses.
Umbrella Policy: Umbrella liability provides extra peace of mind for you and your firm. It covers losses above and beyond those of underlying policies such as general liability insurance. As an added benefit, coverage afforded by umbrella insurance is sometimes broader than that of underlying policies.
Mortgage Banking's Risks & Exposures
Premises liability exposure is limited if the mortgage company carries out all transactions over the phone or at the client's business, home, or other locations. If clients do come to the premises, the condition of the area open to the public is a prime concern as visitors may be injured from slips or falls. Floors need to be in good condition, with steps and uneven floor surfaces prominently marked. The number of exits must be sufficient and well-marked, with backup lighting in the event of a power failure.
Steps should have handrails, be well-lighted, marked, and in good repair. Parking lots and sidewalks need to be in good repair with snow and ice removed, and generally level and free of exposure to slips and falls. There should be security in the parking lot equal to or better than the surrounding area. Personal injury exposure arises from breaches of customers' privacy and confidentiality of their financial records and discrimination in lending practices.
Directors' and officers' exposure can be substantial due to competing priorities of numerous stakeholders including stockholders, bondholders, depositors, mortgageholders, 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. Mortgage companies may offer escrow fund handling and other financial activities.
Directors and officers can be sued if funds from any of these are mismanaged. Officers must be thoroughly knowledgeable about the mortgage lending business, able to operate competitively while maintaining profitability, and able to oversee ongoing operations effectively. Directors should include representation from a wide variety of business interests with no conflicts of interest.
Errors and omissions exposures are possible during any mortgage transaction. There must be checks and balances in place to quickly catch and fix errors that are made. The background and training of all professional-level employees must be thorough and continual to keep up-to-date with industry changes. Monitoring is necessary. In servicing mortgages, the mortgage company must verify that all mortgaged properties have hazard insurance. A mortgage errors and omissions policy provides blanket coverage for any inadvertent omission.
Workers compensation exposures are light as mortgage companies keep little cash on the premises and are therefore less attractive for holdups than other financial institutions. As most work is done on computers, employees are exposed to eyestrain, neck strain, and repetitive motion injuries including carpal tunnel syndrome. All workstations should be ergonomically designed to reduce the chance of such injuries.
Property exposures are primarily from fire due to the electrical wiring for computers, printers and other electronic office equipment, heating, and air conditioning systems. All wiring must meet current codes, be well maintained, and be adequate for the company's operations. Circuitry on electronic equipment may be easily damaged from smoke, water, and heat, which will cause a total loss even with a small fire. Extra expense coverage should be considered as the company must continue operations after a loss.
Crime exposure is primarily from employee dishonesty, either from theft or from the improper transfer of funds held for customers. Mortgage companies need a Financial Institutions Bond to cover this and other crime exposures. Background checks should be conducted for anyone who will have access to the accounts. There must be regular monitoring and auditing of the books by outside auditors to prevent and identify problems. All employees must take at least one continuous week of vacation a year. Controls and programming to prevent computer fraud should be reviewed. Extortion is a growing concern due to the high value of assets held by mortgage companies.
Inland marine exposures are from accounts receivable for billings to customers, computers used for tracking financial data, and valuable papers and records for customers' and regulatory information. Backup copies of all records, including computer records, should be made and stored off premises for ease of restoration in the event of a loss.
Commercial auto exposures may be limited to hired and non-owned for employees running errands. If the company provides vehicles to officers or key employees, policies should be in place for personal and permitted use of the vehicles. Any driver must have a valid driver's license and acceptable MVR. Vehicles must be well maintained with records kept in a central location.
What Does Mortgage Broker Insurance Cover & Pay For?
There are several reasons why mortgage brokers may face lawsuits. Some common examples include:
Errors or Omissions: Mortgage brokers may be sued for errors or omissions in the loan application process, such as failing to disclose important information, providing incorrect or incomplete advice, or making mistakes in documentation.
How insurance can help: Errors and omissions (E&O) insurance, also known as professional liability insurance, is designed to protect mortgage brokers against claims related to professional mistakes. E&O insurance can help cover legal defense costs and damages awarded in a lawsuit, up to the policy limits.
Breach of Fiduciary Duty: Mortgage brokers owe a fiduciary duty to their clients, which includes acting in their best interests and disclosing any conflicts of interest. Failure to fulfill this duty can result in lawsuits.
How insurance can help: Fiduciary liability insurance can provide coverage for mortgage brokers in case of allegations of breach of fiduciary duty. It can help cover legal defense costs and damages, up to the policy limits.
Fraud or Misrepresentation: Mortgage brokers may be sued for fraudulent activities, such as providing false information on loan applications, misrepresenting loan terms, or engaging in predatory lending practices.
How insurance can help: Some insurance policies may include coverage for fraud or misrepresentation, depending on the specific policy terms. This can help cover legal defense costs and damages awarded in a lawsuit, up to the policy limits.
Regulatory Violations: Mortgage brokers are subject to various federal, state, and local laws and regulations. Violations of these regulations, such as failure to comply with Truth in Lending Act (TILA) requirements or other consumer protection laws, can result in lawsuits and regulatory fines.
How insurance can help: Some insurance policies may include coverage for regulatory violations, such as regulatory defense costs and fines, depending on the policy terms.
Data Breaches: Mortgage brokers may handle sensitive client information, including financial and personal data. In the event of a data breach, mortgage brokers may face lawsuits from clients alleging inadequate data security measures or failure to protect their information.
How insurance can help: Cyber liability insurance can provide coverage for mortgage brokers in case of data breaches, including legal defense costs, notification costs, and damages, up to the policy limits.
It's important to note that insurance coverage may be subject to deductibles, exclusions, and other terms and conditions. It's essential for mortgage brokers to carefully review their insurance policies and work with qualified insurance professionals to ensure they have appropriate coverage for their specific needs.
Commercial Insurance And Business Industry Classification
- SIC CODE: 6162 Mortgage Bankers and Loan Correspondents, 6163 Loan Brokers
- NAICS CODE: 522292 Real Estate Credit, 522390 Other Activities Related to Credit Intermediation, 522310 Mortgage and Nonmortgage Loan Brokers
- Suggested Workers Compensation Code(s): 8810 Clerical Office Employees NOC, 8742 Salespersons or Collectors - Outside
6162: Mortgage Bankers and Loan Correspondents
Division H: Finance, Insurance, And Real Estate | Major Group 61: Non-depository Credit Institutions | Industry Group 616: Mortgage Bankers And Brokers
6162 Mortgage Bankers and Loan Correspondents: Establishments primarily engaged in originating mortgage loans, selling mortgage loans to permanent investors, and servicing these loans. They may also provide real estate construction loans.
- Bond and mortgage companies
- Loan correspondents
- Mortgage bankers
- Mortgage brokers, using own money
- Mortgage companies, urban
6163: Loan Brokers
Division H: Finance, Insurance, And Real Estate | Major Group 61: Non-depository Credit Institutions | Industry Group 616: Mortgage Bankers And Brokers
6163 Loan Brokers: Establishments primarily engaged in arranging loans for others. These establishments operate mostly on a commission or fee basis and do not ordinarily have any continuing relationship with either borrower or lender.
- Agents, farm or business loan
- Brokers, farm or business loan
- Loan agents
- Loan brokers
- Mortgage brokers arranging for loans but using money of others
Mortgage Broker Insurance - The Bottom Line
You must be a qualified mortgage broker. You must also be able to provide proof that you have all the necessary professional training and education required to practice this profession. There are numerous components involved in processing a loan - all of which could lead to a claim if a customer emerges unsatisfied.
Running your mortgage brokerage firm also presents various business risks. The smart mortgage professional recognizes these risks, and insures themselves with a comprehensive mortgage broker insurance plan.
Additional Resources For Financial Institutions Insurance
Discover the types of commercial insurance that banks, finance companies and other financial institutions need to protect their asset management, deposit, lending, investment and other operations.
- Check Cashing
- Credit Union
- Currency Exchanges
- Finance Companies
- Insurance Company
- Mortgage Broker
- Specialty Financial Institutions And Services
- Specialty Insurance Services
Financial institutions, including banks and finance companies, are responsible for managing and handling large amounts of money on a daily basis. With this responsibility comes a certain level of risk and potential for financial loss due to unexpected events such as natural disasters, cyber attacks, or employee theft.
Business insurance can help protect these financial institutions from financial loss due to unexpected events. For example, a natural disaster such as a flood or earthquake could result in physical damage to a bank's property or equipment, leading to costly repairs and lost revenue. Insurance can cover these costs and help the bank get back up and running as quickly as possible.
In addition, financial institutions are also at risk for cyber attacks and data breaches. These types of incidents can lead to significant financial loss, as well as damage to the institution's reputation. Insurance can provide coverage for the costs associated with responding to a cyber attack, including legal fees, notification and credit monitoring services for affected customers, and public relations efforts to repair any damage to the institution's reputation.
Finally, financial institutions must also consider the risk of employee theft or fraud. Commercial insurance can provide coverage for losses due to employee dishonesty, helping to protect the institution's financial stability and reputation.
In summary, financial institutions have a lot at stake when it comes to protecting their assets and reputation. Commercial insurance can help mitigate the risk of financial loss due to unexpected events, ensuring that these institutions are able to continue serving their customers and fulfilling their financial responsibilities.
Minimum recommended small business insurance coverage: Business Personal Property, Extra Expense, Equipment Breakdown, Financial Institutions Bond, Accounts Receivable, Computers, Valuable Papers and Records, General Liability, Directors' and Officers' Liability, Employee Benefits, Fiduciary Liability, Professional, Umbrella, Hired and Non-Owned Auto, Workers Compensation & Surety Bonds.
Other commercial insurance policies to consider: Buildings, Earthquake, Flood, Leasehold Interest, Real Property Legal Liability, Computer Fraud, Extortion, Fine Arts, Signs, Cyber Liability, Employment-related Practices, Law Enforcement Professional, Business Auto Liability and Physical Damage And Stop Gap Liability.