The law holds you personally liable.
The law will hold you liable, either by having your license revoked or even imprisoning you, for fraud for the life of a loan.
In fact, the mortgage broker industry is regulated by 10 federal laws, 5 federal enforcement agencies and 49 state law or licensing boards. And, with all of the bad press about Predatory Lending & Mortgage fraud, you understand the importance of fully disclosing the loan terms to both consumer and lender.
Here are the types of exposure that mortgage brokers and loan officers need protection from:
You hold confidential client information, including social security numbers and payment information.
Cyber liability: Computers and websites that hold confidential client information can be hacked and stolen.
Crime liability: Employee dishonesty can come in many forms - social security numbers, credit card information, trade secrets, and other confidential information can be stolen. Wise brokers take the time to do background checks before hiring and permitting any employee to work with personal identifying information or visit any client's premises.
Your clients count on your advice.
Professional liability: We know that you work with your client's best interests at heart. The following are some of the biggest red flags of predatory lending practices. Make sure that your employees understand that these will not be tolerated.
Practicing any of these could open you to litigation:
- Falsifying income/asset and other documentation.
- Not disclosing Yield spread premium or other hidden fees BEFORE the settlement/closing.
- Failing to provide all RESPA documentation so the borrower can clearly understand the mortgage terms and lender policies.
- Convincing borrowers to refinance a loan without any true benefit to them.
- Influencing a higher Loan Amount and inflated appraisals.
- Unjustly capitalizing on a borrower's relative ignorance about mortgage acquisition.
- Inserting hidden clauses in contracts in which a borrower will unknowingly promise to pay the broker or lender to find him or her a mortgage whether or not the mortgage is closed. Source
Protect your business.
Property exposure: What would happen if all of your records, computers, and books were destroyed in a fire? All information should be kept in fireproof cabinets. Invest in cloud backup technology.
Inland marine exposures: Do you travel to and from your clients' homes and offices carrying your laptop, receivables, valuable papers, and records? First, you will need inland marine coverage. Second, be sure to make duplicate copies of all important information and keep them stored off-site.
Premises liability exposure: Do you have clients that come to see you at your office location? Reducing off-site exposure includes having all employees submit to background checks and having a policy/procedure manual explaining how employees are to conduct themselves off-site.
Errors and omissions exposures: No one is perfect and mistakes can happen during any mortgage transaction. Therefore, there must be a system of checks and balances in place to quickly catch and fix any mistakes that are made. Continuous education ensures that you and your employees are working under the latest guidelines and best practices of the industry. Finally, make sure to get an E&O policy to protect you from any omissions.
Additional exposures you need to be aware of as a mortgage broker:
Directors' and Officers' exposure: 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.
Automobile liability exposure: Do you and your employees use vehicles during the performance of your work? Here are few suggestions. First, do a motor vehicle record check on all employees before allowing them to drive company vehicles. Is there procedure/policy book for all drivers of company vehicles? Be sure to get a commercial auto policy to protect your mortgage brokers business.
Workers compensation exposure: Do you have employees performing repetitive tasks? Teach your employees how to reduce eyestrain, neck strain, carpal tunnel syndrome, and similar cumulative trauma injuries. Invest in ergonomically designed workstations. Invest in a workers' comp insurance plan that will protect your employees and your business interests.
Here is the minimum recommended mortgage brokers insurance coverage:
- Business owners policy
- Business Personal Property
- Employee Dishonesty
- Accounts Receivable
- Valuable Papers and Records
- General Liability
- Employee Benefits Liability
- Directors' and Officers' Liability
- Professional Liability
- Errors and omissions
- Commercial Umbrella Liability
- Hired and Nonownership Auto Liability
- Workers Compensation
- Cyber insurance