He’s not discouraging them, but an E&O insurance broker is warning mortgage professionals about the costs associated with their expansion into private lending – a move that could raise their insurance premiums by as much as 90 per cent.
“I’m not saying that your E&O will go up the moment you use a private lender,” said Derrick Leue, president of LMS PROLINK, the insurance broker partner for Liberty International Underwriters Liberty, “but you have to be careful.
“As the frequency of your private lender deals goes up, so will your insurance rates – you could see a bump of 10 per cent and even 90 per cent if you have any claims.”
In recent months, many brokers have refocused on individual private lenders and MICs as a way of diversifying their revenue stream outside of a dwindling number of Triple A deal. It’s also a way of servicing clients shut out by tighter underwriting, even among institutional alternative lenders.
Brokers are already aware of the consequences private deals could have on their brokerage E&O.
“Please also insure that your E and O insurance covers you to act for a Private Investor,” wrote one MBN reader this week.
Those concerns about higher E&O premiums are valid, said Leue who pointed out that the majority of the claims his company handles involve private lenders.
“Almost 90 per cent of the claims we receive are claims on mortgages arranged with private lenders,” he said. “A majority of that or about 60 per cent involve individual private lenders who believe the mortgage brokers failed to accurately disclose to them the risks involved in the deal.”