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Bonded and Insured: A Foundation for Rebuilding Trust

Greg Schroeder
Nov 24, 2010

Okay, so we all agree that being a licensed, bonded and insured broker is not only a smart business decision, but it is also the right thing to do, right? Assuming unwavering agreement from my many loyal readers, this month, I will explain how brokers can achieve maximum value from the adoption of these hallmarks of a true Trusted Mortgage Professional. The licensing part of the equation is easy, mainly because it’s now required. While the advantages of being licensed (i.e. being allowed to lend) may seem pretty obvious and finite, there are ways to use this fact to a broker’s advantage. Many borrowers are unaccustomed to seeing mortgage professionals advertise themselves as being licensed so why not update your marketing materials to include this fact? A sizable banner on your Web site and in your marketing literature, as well as a few well-worded updates on the social media outlet of your choice (Twitter, Facebook, LinkedIn, etc.) announcing this fact, could go a long way in regards to customer acquisition and would be time and money well-spent. The second piece of this equation is a little trickier. People often assume that “bonded” and “insured” are one and the same, but actually, these are two different, yet complimentary, concepts. To be “bonded” means to have financial protection in place to cover claims made against your company for wrongdoing on the part of an employee. The most common type of bond coverage is a fidelity bond, which covers a business in the event of dishonest acts by an employee. However, this type of bond hasn’t been available to brokers until just recently. A newly available fidelity bond just for brokers protects against acts of mortgage fraud or deceit on behalf of an employee intended to enhance that employee’s personal financial gain or to cause harm to the employer, including acts by third-parties such attorneys or closing agents retained by the broker. To provide brokers with maximum protection, the fidelity bond should cover the following: Forged checks and documents; fraudulent mortgages, including fraudulent procurement (theft) of a mortgage investor’s money or collateral; and computer crime. Other features that would be beneficial for brokers include retroactive coverage, automatic coverage for newly-established offices and a definition of “insured” that covers both past and present employees from the top of the organization down. What a fidelity bond doesn’t cover is negligence, which is where professional liability or professional indemnity insurance comes into play. This type of coverage protects a business from errors, omissions and other type of mistakes, hence the policy’s more common moniker “E&O.” The legal definition of negligence is very broad, which is not good news for businesses like mortgage companies that must execute with perfection every time. Most E&O policies are written for a specific business, so be sure to use an agent that has experience in creating these types of policies for mortgage companies to ensure that all of the bases are covered. However, a robust E&O policy should cover the following: Failure to obtain or maintain required property insurance including flood coverage; improper Flood Zone Determination; failure to secure FHA/VA/PMI guarantees; failure to obtain or maintain life or disability insurance on the mortgagor; or failure to pay real estate taxes or special assessments. A true Trusted Mortgage Professional needs to be motivated by more than just the bottom line if they expect to succeed in today’s wholesale environment. A commitment to quality, integrity and fidelity can no longer be lip service, but must now be the foundation upon which brokers must build their business. One small crack in that foundation and the whole structure could come tumbling down. Are you ready? Greg Schroeder is president of Comergence Compliance Monitoring. To learn more about how the Comergence Compliance Trusted Mortgage Professional program can help, call (714) 495-4720.