Insurance for mortgage brokers falls under the category of professional liability. It covers claims arising from violations of a variety of lending regulations, such as the Truth in Lending Act. Additional regulations cover real estate settlement procedures, equal credit opportunities, and fair housing.
Who Is Covered?
Also known as errors and omissions insurance, it applies to errors that may be made in professional services. Plans are available to cover a range of mortgage occupations, such as:
- Mortgage brokers
- Title agents
- Escrow agents
- Mortgage bankers
- Independent contractors
Services and processes covered by this insurance include loan origination and loan underwriting. Coverage also extends to marketing, processing, closing and warehousing services.
Misrepresenting Loan Terms
One example of a claim covered by insurance for mortgage brokers is a misrepresentation of loan terms. This scenario can occur when a borrower asks for a loan without pre-payment penalties, only to find out when he tries to refinance that the opposite is true. This discovery may prompt a lawsuit.
Real Estate Settlement Violations
Another example is a borrower suing for violations of settlement procedures to avoid foreclosure. The court dismisses the suit as lacking merit, but the company has legal costs. Professional liability insurance covers these costs beyond the deductible.
Insurance for mortgage brokers continues to be impacted by new regulations in the face of ongoing industry scandals and lawsuits. Having this insurance in place can help you remain prepared.