Mortgage Concerns for Lenders

E&O Insurance

In the world of insurance, errors and omissions policies are designed to protect the holder from losses that arise over claims of poor business performance or negligence in duties. These policies are abbreviated E&O for short and can be stand-alone policies, such as professional E&O or malpractice plans, or the coverage can be included as an extension of a packaged policy. Banking institutions often have mortgage E&O included with a package policy combining the building insurance and general liability insurance.

Risky Business for Mortgage Lenders

A bank can be protected when errors occur with the management of mortgage collateral or the government guarantees that back an issued mortgage. There are several sections of coverage under this policy type, with mortgage impairment giving banks financial recourse in the event that physical damage occurs on a mortgaged property where insurance coverage was canceled. A loan could go into default following a property fire that destroys the mortgaged structure. Your insurance policy can protect you from the loss of the outstanding loan amount.

Impairment Requirements

Because of the risks associated with causes of loss, many plans will specify which perils are covered. These usually include:

  • Vandalism
  • Extended coverage
  • Fire

The information found on states that banks are often required to track and check the insurance policies for borrowers, which can be a huge administrative expense and effort. However, this is a proactive way to avoid risks and impairment concerns, potentially saving the company money on claims and premium costs.