Mortgage Banking Insurance Webinar Wed., Jan. 23,...

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Mortgage Banking Insurance Webinar Wed., Jan. 23, 2013

Transcript of Mortgage Banking Insurance Webinar Wed., Jan. 23,...

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Mortgage Banking Insurance WebinarWed., Jan. 23, 2013

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Agenda

Mortgage Bankers Bond including fidelity and mortgage E&O –The compliance needs for meeting GSE, investor and warehouseLender requirements

Lee Brodsky, President of Mortgage Banking Insurance Group

Professional Liability – it’s importance and how it differs from therequired mortgage E&O

Lee Brodsky , President of Mortgage Banking Insurance Group

Directors & Officers Liability – how it protects you and your businessand how it benefits privately-held companies

Tom Tehan, Sr. Vice President of Amwins

Employment Practices Liability – protection from employment-related suits for wrongful termination, discrimination & harassment

Tom Tehan, Sr. Vice President of Amwins

Cyber Liability – the risks of cyber breaches & loss of customer data,and the insurance coverage available

Tom Tehan, Sr. Vice President of Amwins

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State License/Surety Bonds – why they are necessary for the Mortgage industry and why bonding companies may require personal indemnity ofOwners.

Denise Hill, Surety Manager at JMB Insurance

Reps & Warranties for loan repurchases – reduce the risk to your bottom line by obtaining insurance to indemnify Lenders’ liability. Expert legal counsel is included.

James Brody, Managing Member at American Mortgage Law Group

Claims examples – case examples of claims from the mortgage industry.Alex Mahler, Partner at Gordon and Rees

Q&A – submit your insurance questions. Email questions to Lee Brodsky at [email protected]

Agenda Cont’d

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What are the basic insurance requirements that mortgage bankers must meet?

Residential Lenders – GSEs, investors and warehouse lenders Fidelity and Mortgage Errors & Omissions

is generally based on the higher of origination or servicing. However, at the moment FNMA still uses only servicing. Currentlyat $300,000 min. limit.

Commercial/Multifamily Lenders – GSEs, investors andwarehouse lenders

Fidelity and Mortgage Errors & Omissionsis also generally based on the higher of origination or servicing. Freddie multi-family starts at $2million base limit.

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What is provided in a Mortgage Bankers Bond?A Mortgage Bankers Bond is a combination of Fidelity, Crime insuranceand E&O. This includes employee dishonesty, robbery, burglary, forged documents, counterfeit currency and mortgage errors & omissions

Fidelity only covers dishonest acts by employees as defined in the policy. This generally means dishonest or fraudulent acts by an employee acting alone or in collusion with others with the manifest intent to cause a loss and to obtain personal gain.

Personal gain does not include employee benefits earned in the normal course of employment such assalary, commissions, fees, bonuses, etc.

What is fidelity aka employee dishonesty?

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What is Mortgage Errors & OmissionsThis is another required coverage. This is a named peril policy which means it spells out the specific perils that are covered. These usually include:

failure to obtain or maintain fire & extended coverage insurance, flood ins.,homeowners ins., mortgage life and A&H. Also determine that a property is in a flood zone as well as obtain FHA insurance and VA guarantee.

For commercial lenders the E&O can be further extended to pick up all perilsrequired under the terms of the mortgage, loan servicing agreement or letter of commitment. This may include business interruption, loss ofrents, general liability, boiler & machinery.

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Professional Liability Insurance

This is also known as a business malpractice policy similar to whataccountants or attorneys may carry. Professional Liability is a broad form of errors & omissions but, unlike the required mortgage E&O, is generally not required by investors, GSEs or warehouse lenders.

Professional Liability is an “all risk” policy, compared to mortgage errors & omissions that is a named peril policy. That means it provides a broad definition of professional service that protects a mortgage banker and it’s employees against negligent acts, errors & omissions arising out of their professional service as a mortgage banker or mortgage broker.

This can include loan origination, loan processing, loan marketing, loan closing, warehousing, loan accounting and loan servicing including sub-servicing, master servicing, foreclosure and REO servicing.

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On the other hand, an “all risk” policy has a number of exclusions that remove the coverage that carriers do not wish to provide. A few of the common exclusions are:

1. Acts that took place prior to the policy inception, if this is the first time you purchased the insurance

2. Prior or pending litigation as of policy inception

3. Fraudulent or dishonest act (which may be covered by fidelity)

4. Liability assumed under contract unless you would have been liable for the wrongful act absent of the contract.

5. Loan repurchase

Tom Tehan from Amwins will be our next speaker

Professional Liability Insurance Cont’d

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Directors & OfficersEmployment Practices and

Cyberliabilityfor Private Companies

Prepared in partnership with:

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Private Company D&O Coverage

• The goal of D&O insurance is to protect the directors and officers of a corporation against claims for alleged or actual breaches of fiduciary duty, neglect, errors, misstatements, misleading statements, or omissions.

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• Investors are more likely to hold management liable for a company’s poor financial performance.

• Employees are more likely to commit fraud or steal from their company during tough economic conditions.

• Layoffs increase the likelihood that disgruntled ex-employees will file claims alleging wrongful employment practices.

• A tighter credit market makes obtaining funds to pay for losses or to continue business operations more difficult.

Economic Instability Amplifies Exposures

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D&O Claims: 2005-2010 More than 1 in 8 (12.5%) private companies experienced a D&O

claim in the last 5 years

Average settlement experienced was $225,682

Who is suing?o 29% Customers – Contract Disputes, Debt Collection, Deceptive Trade Practiceso 28% Government/Regulatory Agency – Antitrust, Bankruptcyo 20% Vendoro 17% Competitor – False Advertising, Antitrust, Business Interferenceo 6% Partner/Shareholder – Accounting Fraud, Merger/Acquisition

Source: Facts from the 2010 Chubb Private Company Risk Survey

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• A company is normally empowered to indemnify its directors and officers against personal liabilities that emanate from activities performed on behalf of the company. But the indemnification powers of the corporation are not absolute. As a result, GAPS exist in the ability of the company to indemnify its directors and officers.

• Reasons companies are unable to indemnify often include: insolvency, prohibition by public policy, and lack of adequate indemnification provisions in the corporate charter or bylaws.

• Some non-indemnifiable claims are: – Shareholder Derivative Actions – Securities Based actions – Regulatory Matters – Financial Solvency Issues – “Duty of Loyalty” or Conflict-of-Interest Situations

• Without indemnification, the individual directors and officers of a private company can be held personally liable as a result of their acts or failure to act with respect to the company’s business interests.

Corporate Indemnification

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Private Companies Are Not Immune to Securities Claims

• A common misconception is that private companies are not susceptible to securities actions, but that does not mean they are exempt from U.S. securities laws and regulations.

• Directors and officers of private companies are exposed to claims involving securities the company has issued.

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EPL Coverage

Common EPL Allegations:• Wrongful Hiring or Firing (or Constructive discharge)• Unlawful Harassment (including sexual harassment)• Retaliation by an employer against employees who exercise a legal right• Discrimination against employees or third parties because of their age, race,

gender, etc.• Wage and Hour Claims under Fair Labor Standards Act

The goal of EPL insurance is to protect employers from liability arising from alleged violations of tort law and federal and/or state statutes governing the employment relationship. In the past several years, the courts and legislatures have increasingly expanded the exposures faced by employers.

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EPL: Private Companies

Source: Chubb Private Company Risk Survey 2010 – www.chubb.com/privatecompanysurvey

• EPL lawsuits are common.– “More than 1 in 5 private companies (21%) have experienced an EPL

related event (a charge filed with the EEOC or a lawsuit) within the past 5 years.”

• Defending against EPL charges can adversely affect your bottom line. – Chubb’s study indicates that companies that experienced an EPL

charge or lawsuit in the past 5 years, the average cost was $51,975.

– $326,640 – Median compensatory award for EPL lawsuits

– 46% of those companies reported losses between $20,000 and $750,000.

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Why Do I Need EPL Insurance?

Source: Chubb Private Company Risk Survey 2010 www.chubb.com/privatecompanysurvey

Private Company Information:

• Employment-related lawsuits are common.– About 1 in 5 private companies (21%) have experienced an EPL-related

event within the past 5 years.

• Frequency of lawsuits increases significantly as the number of employees increases.

– Percentage of companies experiencing an EPL charge or lawsuit in past 5 years:

• 20% for companies with 25-49 employees• 33% for companies with 50 – 99 employees• 38% for companies with 100 -249 employees• 50% for companies with 250 or more employees

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Most Common Defendants

Service/Retail includes retail stores, hotels and motels, communications, real estate, financial services, utility companies, private education, recreation and amusement facilities.

Government Entities include governments at all levels, emergency and law enforcement agencies, public schools, regulations departments, and other public administration.

Manufacturing/Industrial includes companies that deal with machinery, building supplies, medical supplies, paper, natural gases, food, computers, and chemicals (production, not retail).

Transportation Companies includes those working in air, motor, freight, railroad, sanitation, and water transportation.

Source: Jury Verdict Research, EPL Jury Award Trends and Statistics, 2011

Type of Defendant Percentage (%)Service/Retail 41%Manufacturing/Industrial 12%Government Entities 42%Transportation 4%Other 1%

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EEOC Enforcement on the Rise• In FY 2010, the Office of General Counsel resolved a total of 287 merit lawsuits,

yielding $85.1 million in monetary relief.

• The Office of General Counsel resolved a total of 321 merit lawsuits representing $82.1 million in monetary relief in FY 2009.

Source: U.S. Equal Employment Opportunity Commission, Fiscal Year 2010 EEOC Performance and Accountability Report, Litigation Section, http://www.eeoc.gov/eeoc/statistics/enforcement/litigation.cfm.

Fiscal Year Total Number of Charges Filed with EEOC

2010 99,9222009 93,2772008 95,4022007 82,7922006 75,7682005 75,428

• Regardless of merit, these charges must be defended at the cost of the employer.

• Race discrimination, retaliation and sexual discrimination are the most common charges filed.

21%

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Retaliation Claims• Retaliation claims have risen to 37% of all charges filed with

the EEOC – a 10% increase over the past decade.• In 2011, the EEOC received 37,334 charges of retaliation

discrimination.• These claims are not insubstantial. Between 2004 and 2010,

the average retaliation damage award was over $720,000, and 63% of damage awards were greater than $100,000.

• Retaliation is not limited to termination of an employee. It can also include acts such as excluding an employee from meetings, relocating the employee’s office, or other changes that might otherwise appear harmless.

Sources: EEOC, http://www.eeoc.gov/eeoc/statistics/enforcement/charges.cfmJury Verdict Research, EPL Jury Award Trends and Statistics, 2011.

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Recent Exposure Developments

• Mass layoffs typically lead to increased lawsuits by dismissed employees.

– Allegations stem from perceived discrimination

– WARN and Wage & Hour disputes

• Changes in law expose employers to liability.

– Lilly Ledbetter Fair Pay Act – 1/27/09

– Changes to FMLA – 1/16/09

• Third Party EPL

– Filed by customers, vendors, suppliers or clients. Often alleging discrimination or harassment.

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Wage & Hour – Settled Wage and Hour Cases by Allegation

Overtime 44%

Off-the-Clock 7%

Misclassification 16%

Missed Meals and Breaks 20%

Donning and Doffing 5%

Minimum Wage 5%

Tip Pooling 3%

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Source: Trends in Wage and Hour Settlements: 2011 Update. NERA Economic Consulting

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Insurance Is Worth the Cost

When it comes to EPL lawsuits, it is not a matter of if you are sued, but whenyou are sued. Using HR policies and training programs can help mitigate your risk, but EPL insurance protects employers from the substantial cost of these lawsuits.

Sources: *Jury Verdict Research, EPL Jury Award Trends and Statistics, 2011 Edition** NERA Economic Consulting, Trends in Wage and Hour Settlements: 2011 update

Average awards of more than $600,000 means a company can afford MANY years of EPL premium for the cost of just ONE claim.

Employment Claim Type Median Award Average Award

Discrimination* $198,322 $600,690

Retaliation* $200,000 $722,179

Wrongful Termination* $259,975 $789,184

Whistleblowers* $210,000 $715,045

Wage & Hour** $1,600,000 $4,600,000

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Cyberliability Insuring Agreements

• 1st Party Business Interruption – Covers lost business income in the event a virus infection shuts you down.

• 1st Party Data Asset – Covers your expenses to recover lost data.• Cyberextortion – Covers expenses and ransom if a hacker threatens to shut you

down. This insuring agreement often covers reward amounts offered to catch the extortionist.

• Network Security – Covers your liability when hackers use your system to inflict damage on others.

• Privacy– Notification Expenses – when data is lost, you must notify all potential victims within a short

period of time as required by state laws.– Credit Monitoring – Policies will cover up to 1 year of credit monitoring services for those

exposed. In some cases 2 years of monitoring will be available.– Credit Repair Services – 1 Year of services to repair credit of an actual identity theft. – Crisis Management – Public Relations expense coverage to protect your image.– Regulatory Defense and expenses – Many new regulations exist related to the protection of

confidential data. The insurance will provide defense cost coverage for regulatory proceedings and in some cases cover penalties where insurable.

• Electronic Media – Covers website content liability (copyright, libel, slander, etc...)24

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Common Privacy Breach Allegations

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• Invasion of the customer’s (or employee’s) right to privacy

• Failure to implement and maintain reasonable security procedures

• Unfair, deceptive, and unlawful business practices

• Negligence

• Emotional distress

• Individually or as class actions

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Basic Definitions

• What is Personally Identifiable Information (PII)– Credit Card Information– Personal Financial Information

• Social Security Numbers• Drivers License Numbers• Banking Information• Employment Information• Insurance Information

– Personal Health Information– Business Information of others

• Trade Secrets

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Possible Means of Disclosure

– Lost or stolen laptops, computers, or other computer storage devices

– Backup tapes lost in transit

– Lost paper records

– Hackers

– Employee theft

– Poor business practices

– Internal security failures

– Viruses, Trojan Horses, and computer security loopholes

– Improper disposition of information27

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Data Loss Expenses

Statistics from the Ponemon Institute 2011 Cost of Breach Study:• Average total cost per reporting company: $5.5 million• Average per-record cost of a data breach: $194

(Expect about $60 per record for notification and credit monitoring)

Per Capita Costs of a Breachby Industry Classification

Healthcare $240Financial $247Hospitality $116Services $185Pharma $276Average $194

Cause of Data Breach

System glitch 24%Negligence 39%Cybercrime or Hack 37%

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What is Surety?January 23, 2013

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Surety is not Insurance• Insurance is a two party agreement between

you and the insurance carrier• Your premium payment goes into a pool and

when claims occur, losses are paid from that pool of premiums

• Losses are expected• In most cases, the principal chooses to

purchase the insurance for their own protection

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Three Party Agreement• Surety – the insurance carrier (Hartford,

Capitol, Liberty Mutual, etc) who is providing the bond to you

• Principal – you the Mortgage Banker/Broker

• Obligee – the State where you obtained a license

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• A requirement made by the various states that you are licensed to do business in. It protects the “people of the state” against losses resulting from your failure to comply with the statutes contained in the license you were granted.

• A form of credit and is underwritten by the carrier on the basis that there will be NO losses.

• In the unlikely event of a loss, the Surety will pay the Obligeeand you will be expected to reimburse the Surety in full

• Premiums are actually fees charged by the surety carrier for the extension of credit. Your financial strength as a company is one of the items that determines the premium.

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What is a Surety Bond?

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Penal Sum/Bond Amount

• Determined by the State

• Maximum amount that the Surety will be required to pay in the event you default on the license/bond terms

• Surety carrier uses this to assess the risk and is one of the items used to determine the premium charge

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Indemnity• Allows the surety to be reimbursed for losses

paid out• An agreement which is part of the application

for a single bond• A General Indemnity Agreement (GIA) covers

an entire account or more than one bond• Company indemnity is ALWAYS required• Depending on the financial strength of your

company, personal indemnity of owners is SOMETIMES required

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Claims• Failure to pay properly assessed fines

• Failure to pay administrative penalties, fines and examination fees

• 3rd party claim by an appraisal company who was owed $600 for a completed appraisal

• Consumers were charged advanced fees on their mortgage loans & loan docs were processed by employees who were not licensed to do so

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Obligee requires surety bond from Principal to comply with the state license

Principal obtains the bond from the Suretyand pays a premium in return for the extension of credit

If obligation is not met and a claim is made, the Surety will pay the Obligee the penal sum of the bond. After Surety pays Obligee, the Surety will then collect the amount paid from the Principal.

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American Mortgage Law Group PC

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The first firm in the country to specialize in Mortgage Fraud Repurchases, AMLG has over 30 years of experience managing mortgage fraud cases.

AMLG has successfully managed, resolved and recovered thousands of repurchase cases.

AMLG is the outsource for in-house counsel

AMLG is the premier loss mitigation firm in the mortgage banking industry.

AMLG specializes in the area of mortgage banking including fraud resolution and litigation, advising and representing mortgage banks, lending institutions, thrifts, and credit unions nationwide.

AMLG PROVIDES:

Repurchase rebuttals.

Legal defense and prosecution in all lender matters.

Forensic File Reviews.

Training and Education.

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The insurance product, offered through an AMLG affiliate and underwritten by Lloyds, London, provides unique and comprehensive fraud and financial integrity insurance protection to lenders in the event of a repurchase request based on a breach of a lender’s representations and warranties in its contract with an investor.

The policy covers residential whole loan losses due to fraud or other financial integrity issues (e.g. financial inaccuracies contained in the loan file) committed by third parties relating to loans originated, purchased, sold, portfolioed or securitized. As data integrity issues become more quantifiable within the mortgage banking industry, representation and warranty Insurance coverage has surfaced as the solution to the largest exposure lenders have for loss.

Representations and Warranties Insurance

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Insurance Overview

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There are many policy variations for specific mortgage channels andproducts as well as many combinations based on the following:

• Correspondent Lending Programs• Wholesale Originations• Retail• Whole Loan Bulk purchases• Warehouse Lines

Representations and Warranties Insurance

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Policy Type

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The representation and warranty insurance coverage responds to data integrity issues contained in the borrower’s loan file and covers those losses due to material financial misrepresentations.

The coverage is victimization insurance for the insured who relies on others to provide reliable data from which intelligent underwriting and origination decisions are made. It applies to loans selected for pooling, as well as to loans portfolioed, purchased or securitized.

The policy does not cover a lender’s own negligence, but rather when it has been caught in the middle: fraud perpetrated on lender and its investor has issued a repurchase request.

Representations and Warranties Insurance

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Policy Intent

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The policy will cover, among others, the following frauds or misrepresentations:

Occupancy MisrepresentationIncome and Employment MisrepresentationUndisclosed Liabilities (debts)Asset and Deposit MisrepresentationStraw BorrowersFraud Schemes, including ID TheftAppraisal losses when they come in concert with one of the above or thirdparties.

Representations and Warranties Insurance

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Covered Events

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Coverage PeriodCoverage is normally provided for a period of 36 months from date the loan is

insured. Other coverage periods are available in certain circumstances.

Conditions to CoverageUnderlying security must be foreclosed upon in the statutory time frame asidentified by the state foreclosure timeline from seller/servicer guidelines.

Insured must provide written notice to the insurance company of an occurrence within 60 days after notice is received by the insured.

The insured must comply with the required pre-funding and quality controlprocesses established under the policy.

Representations and Warranties Insurance

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Coverage Conditions and Periods

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The insurance covers the deficiency between the foreclosure sales price and the unpaid principal balance, in addition to payment for associated fees related to the loss.

Associated Fees Covered:Foreclosure Legal FeesProperty DispositionMarketing ExpenseFile Investigation/ResearchFile Maintenance ExpenseCorporate AdvancesProperty Rehabilitation

Representations and Warranties Insurance

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Loss Coverage

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Standard Coverage Limits:$50,000 each occurrence with a $5,000 deductible

Customized Coverage Limits: Insureds can customize their programs with coverage ofup to $100,000 per loan and variable deductibles and variable per loanoccurrence limits

Annual Aggregate Limits based on insured need and size

Up to $50,000 in legal fees, depending on the type of program purchased.

Representations and Warranties Insurance

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Coverage Limits

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The policy will not apply to any repurchase request claim resulting from the following occurrences:

A claim based solely and exclusively on any appraisal.

A claim made after 36 months from the date of insurance.

A claim based in part on any breach, directly related to the Wrongful Act, of the insured’s written pre-funding procedures and guidelines, and quality assurance or control.

NB: In certain circumstances Appraisal misrepresentation can be covered.

Representations and Warranties Insurance

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Policy Exclusions

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Mortgage Banking Claims

Alex B. Mahler

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Example #1:Mortgage Company Professional Liability

Policy

Facts

• Plaintiff claimed that two former employees of the insured mortgage broker—who were formerly employed by the plaintiff—stole customer information from plaintiffs’ confidential database.

• The suit alleged the insured and the former employees accessed the database to steal the plaintiff's “leads”.

• The employees allegedly contacted the potential customers and closed multiple loans.

• The plaintiff alleged it experienced a dramatic decrease in loan closures and revenue.

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Example #1:Mortgage Company Professional Liability

Coverage Accepted

• Although the suit was based primarily on alleged intentional conduct that would not constitute allegations of wrongful acts, the complaint also contained factual allegations based on negligence and negligent supervision that triggered the insurer’s defense obligation.

• Number of strong coverage defenses applied• Underwriters provided a complete defense following payment of the

Retention. • Indemnity Exposure presented both covered and uncovered

exposure• Underwriters agreed to defend the suit.

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Example #1:Mortgage Company Professional Liability

Policy Outcome

• As coverage counsel, we were involved in the appointment of counsel; negotiated a lower agreed rate; assisted in developing a litigation and settlement strategy; and were instrumental in setting up an early mediation to attempt resolution.

• Matter did not settle because the plaintiff’s demand was excessive. • Insured paid full $250,000 policy limit• Cautionary Tale for ensuring that insured has adequate limits to

cover exposures.

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Example #2:Mortgage Company Professional Liability

Policy Facts

• A borrower suit alleged the insured mortgage lender engaged in predatory lending practices by forcing the borrower to accept an interest-only loan when a fixed-rate mortgage with a lower rate was available.

• The borrower also asserted that the insured and broker concealed a yield spread premium paid by the insured to the broker to induce borrowers to accept interest-only loans with less favorable terms.

• The suit included allegations of fraud, violations of the Truth and Lending Act and the Real Estate Settlement Practices Acts

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Example #2:Mortgage Company Professional Liability

Policy

Coverage Accepted

• Although the suit was based primarily on alleged intentional conduct that would not constitute allegations of wrongful acts, the complaint also contained factual allegations based on negligence and negligent supervision that triggered the insurer’s defense obligation.

• Number of strong coverage defenses applied• Underwriters provided a complete defense following payment of the

Retention. • Indemnity Exposure presented both covered and uncovered

exposure• Underwriters agreed to defend the suit.

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Example #2:Mortgage Company Professional Liability

PolicyOutcome

• As coverage counsel, we were involved in the appointment of counsel; negotiated a lower agreed rate; assisted in developing a litigation and settlement strategy

• Defense counsel filed a summary judgment motion that highlighted the weaknesses in the plaintiffs RESPA and TILA causes.

• We were instrumental in pushing for early settlement discussions before a ruling

• Matter settled for under $30,000.

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Example #3:Mortgage Banker Professional Liability Policy

Facts

• A bank that previously purchased loans originated by the Insured mortgage broker/banker demanded that the insured repurchase five loans due to misrepresentations in the originations.

• The demand was based upon the Loan Purchase Agreement.

• The five loan amounts totaled approximately $600,000.

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Example #3:Mortgage Banker Professional Liability Policy

Outcome: Coverage Denied

• The insured’s claim was purely contractual in nature, and it was not based on allegations of “wrongful acts,” which is defined as allegations of negligence acts, errors or omissions.

• Additionally, there were 3 exclusions that applied, including (1) X (Repurchase Demand); (2) K (Breach of Express Warranty or Guaranty); (3) Y (Agreement to indemnify investor)

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Example #4:Mortgage Bankers Bond

Facts

• Two bank employees allegedly received secret payments from a mortgage company in exchange for their approval of loans to individuals who were not qualified.

• The bank alleged it sustained some losses and filed a claim under its bond

• The bank included in its proof of loss the decrease in stock value that it claimed it suffered from the unqualified loans’ effect on the loan portfolio.

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Example #4:Mortgage Bankers Bond

Outcome: Coverage Denied

• The loss of stock value did not qualify under the bond definition of “losses”

• Required actual depletion of bank funds caused by an employee’s dishonest acts

• Common issue of What constitutes “Direct Financial Loss.”

• Examples of what qualifies and what does not qualify.

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Example #5:Mortgage Bankers Bond

Facts

• Insured’s branch manager allegedly closed 49 loans without the Insured’s knowledge and arranged to have the brokerage fees wired directly to her personal bank account.

• The Insured sought coverage alleging that, despite the fact that it never knew of the transactions, the commissions generated by those transactions constituted “loss” to the Insured.

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Example #5:Mortgage Bankers Bond

Outcome: Coverage Denied

• Excessive commissions did not constitute improper financial gain;

• Excessive commissions did not constitute a “loss”, • Attorney fees sought by the insured also were not

covered

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Example #6:Mortgage Bankers Bond

Facts

• The assured claimed that it funded three loans in reliance on certain documents, including loan appraisals, that were forged or altered.

• It later learned that the closing agent, in collusion with the broker, had absconded with the loan proceeds and failed to payoff existing mortgage liens on the properties.

• The assured was therefore obligated to repurchase the loans from the investor to whom the loans were sold and sought coverage for the resulting loss.

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Example #6:Mortgage Bankers Bond

Outcome: Coverage Accepted

• Insured established “direct loss” under Bond• Clause 5(b) provided coverage if the Insured sustained

direct financial loss as a result of having been legally liable to repurchase loan from investor as a direct result of a forged signature or fraudulent alteration of a Real Estate Document.

• Insurer resolved claims on behalf of Insured for all three loans by paying approximately $300,000 upon confirmation of loan repurchase.

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Alex B. MahlerPartner, Chicago

• Commercial Litigation• Coverage Counsel• Matters implicating:

1. Professional liability policies and Bonds for the Mortgage Industry.

2. D&O; E&O; Lawyer’s and Accountant’s Liability

3. Fidelity and Commercial Crime Policies.4. Commercial General Liability

• Worked as a litigation and claims consultant for a "Big 4" accounting firm

• Eight years in-house in claims and litigation management for a number of insurers

• Charted Property Casualty Underwriter (CPCU)

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Over 500 Lawyers Admitted in

39 Key Jurisdictions

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63 January 23, 2013

Questions

Please email Lee Brodsky with any questions you may have.

[email protected]