Third-party originators will be able to purchase fidelity and professional indemnity insurance, a product normally only available to large mortgage banks, an executive with the agency marketing the product said.
Thus far the coverage is available only in California, said Greg Schroeder, president of Comergence Compliance Marketing, and it is being sold through Comergence Insurance Solutions.
The idea for this coverage, he said, came through Comergence’s regular line of business, providing an end-to-end solution for TPO management and compliance monitoring, including due diligence of brokers, for wholesalers.
The bond is coverage in addition to errors and omissions coverage. Plans are to market this program in states that require E&O policies for mortgage brokers, he said.
The Mortgage Broker Fidelity Bond provides protection in the event of acts of fraud or theft by employees intended for personal gain, or to cause harm or loss to the insured mortgage broker.
So if an employee of the broker committed fraud regarding a loan file and the loan was funded and was later to be discovered to be harmed by the fraud, rather than relying on the broker’s net worth (if there is any) for the recovery, there is an insurance policy in place.
Under the old Federal Housing Administration correspondent approval rules, there needed to be audited financials. But those financials, he added, were no assurance that the money to buy a loan back for fraud was actually there. So Comergence developed this product, believing that “there is a higher level of assurance of getting repaid by making a claim to an insurance policy,” Schroeder said.
It takes the ambiguity out of whether there is or isn’t net worth. The lender has some assurance they will be repaid, he said.
Comergence is asking the lenders it works with if they would accept this policy in lieu of audited financials, and already one has said yes, Schroeder noted.
It is not a surety bond, he said. If a company owner is a party to or had knowledge of the fraud there would be no claim. Besides employees, it also covers fraudulent acts by the consumer.
Schroeder explained that the mortgage broker makes the claim, not the wholesaler. This is actually to protect the broker. Before there is any payout, the insurance company will investigate the claim. If the lender makes the claim, and it was unfounded, there would still be a black mark against the broker, he said.
The broker is only going to make a claim if there is fraud and he or she needs to protect himself or herself.
The underwriters are certain syndicates out of Lloyds of London, Schroeder said.
