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. It the money is not paid back, the mortgage company can foreclose on the loan and sell the property to recoup their investment.
Mortgage companies also service escrow accounts, may be involved in real estate services and transactions, or broker and sell mortgage loans to other operations.
Property exposures are primarily from fire due to the electrical wiring for computers, printers and other electronic office equipment. All wiring must meet current codes and be adequate for the company’s operations. Some equipment will have circuitry 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 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 another growing concern due to the high value of assets held by mortgage companies.
Inland marine exposures are from accounts receivable, computers and valuable papers and records. 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.
Occupiers’ 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. Emergency lighting, well-marked exits, and proper egress, as well as interior and exterior security while going to and from the premises, are important. 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 premises. Personal injury exposure arises from breaches of customers’ privacy and confidentiality of their financial records.
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. Monitoring is a must. 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.
Directors’ and officers’ exposure can 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. 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.
Automobile 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 licence and MVRs must be run regularly. Ongoing maintenance should be documented.
Workers compensation exposures will depend on the type of operation and the amount of cash on hand. Mortgage companies are generally less visible and less attractive for holdups than other financial institutions. Clerical employees are exposed to repetitive motion and carpal tunnel syndrome. All workstations should be ergonomically designed to reduce the chance of such injuries.
Minimum recommended 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, Umbrella, Hired and Non-owned Auto, Workers Compensation.
Other coverages to consider:
Buildings, Earthquake, Flood, Computer Fraud, Extortion, Fine Arts, Cyber Liability, Employment-related Practices, Mortgage Errors and Omissions, Professional, Business Auto Liability and Physical Damage, Stop Gap Liability.
