DEPARTMENT OF REGULATORY AGENCIES

DIVISION OF REAL ESTATE

MORTGAGE BROKERS

EMERGENCY RULE

4CCR 725-3

ERRORS AND OMISSIONS INSURANCE FOR MORTGAGE BROKERS

Section 1.	Authority
Section 2. 	Scope and Purpose
Section 3.	Applicability
Section 4. 	Rules Regarding Errors and Omissions Insurance for Mortgage Brokers
Section 5. 	Effective Date

Section 1. 	Authority

The Director of the Division of Real Estate adopts the following emergency rule entitled, Errors and Omissions Insurance for Mortgage Brokers, according to her authority as found in §§ 12-61-910.3 and 24-4-103(6), C.R.S.

Section 2.	Scope and Purpose

The Colorado Division of Real Estate finds that immediate adoption of this rule is imperatively necessary for the preservation of public health, safety or welfare and that compliance with the rulemaking requirements of § 24-4-103, C.R.S., applicable to non-emergency rules, would be contrary to the public interest.

Section 12-61-903.5, C.R.S. requires the Director to determine the terms and conditions of coverage required, including the minimum limits of coverage, the permissible deductible and permissible exemptions.  Additionally, the Director, Erin Toll, has met with the Insurance Commissioner, Marcy Morrison, to ensure that errors and omissions policies and rates can be reviewed and processed in an expedited manner.  This shall not be construed as normal practice for the Division of Insurance.  The Insurance Commissioner has agreed to expedite the requisite errors and omissions policies to further protect the Colorado consumer, allow mortgage brokers the ability to fulfill the required insurance coverage and allow carriers sufficient time to provide information on required errors and omissions coverage to interested mortgage brokers.

The Director adopted an emergency rule on November 13, 2007 that defined errors and omissions coverage for mortgage brokers.  After consulting with industry leaders, the Director has learned that providers are struggling to review and provide errors and omissions coverage prior to January 1, 2008.  The delays are specific to subprime and reverse mortgage transactions.  Accordingly, the Director establishes compliance through a good-faith effort to acquire the requisite coverage through and including January 31, 2008.  Additionally, the Director has learned that a $5,000.00 deductible is a deterrent for mortgage brokers who primarily transact subprime mortgage loans.  As a result, the Director has increased the deductible from $5,000.00 to $10,000.00 in this rule.

Without the immediate adoption of this emergency rule, the public’s interest is not served.  Wherefore, the Director, pursuant to § 24-4-103(6), C.R.S. has an obvious and stated need to adopt this rule.

Section 3.	Applicability

This emergency rule governs individuals who broker a mortgage or act as a mortgage broker pursuant to §§ 12-61-902(2) and (5), C.R.S.

Section 4.	Rules Regarding Errors and Omissions Insurance for Mortgage Brokers

1.	Mortgage brokers, at a minimum, shall maintain the following terms of coverage:

a.	The contract and policy are in conformance with all relevant Colorado statutory requirements.

b.	Coverage includes all acts for which a mortgage broker license is required, except those illegal, fraudulent or other acts which are normally excluded from such coverage.

c.	Coverage shall encompass all types of transactions conducted by the mortgage broker. 

d.	Coverage is for not less than $100,000.00 for each licensed individual per covered claim, with an annual aggregate limit of not less than $300,000.00 per licensed individual.

e.	Coverage contains a deductible no greater than $10,000.00.

2.	Through and including January 31, 2008, mortgage brokers may also comply with the errors and omissions requirement if:

a.	They are an officer, partner, member, exclusive agent, contractor, independent contractor or employee of a mortgage company that maintains errors and omissions insurance and such coverage includes the individual licensee’s activities as a mortgage broker; or

b.	 They have demonstrated a good-faith effort to acquire the requisite errors and omissions coverage defined in this rule.  A good-faith effort means that the following has been completed:

i.	 The mortgage broker has submitted any and all documents or paperwork required by the errors and omissions provider necessary to complete an application for the coverage defined in this rule;

ii.	The mortgage broker has sought errors and omissions insurance from a company that can actually provide the requisite coverage;

iii.	The mortgage broker is merely waiting for the insurance provider to review their submitted documents; and  

iv.	The mortgage broker maintains proof of their good-faith effort to acquire the requisite errors and omissions insurance and shall present such proof to the Director if requested.

c.	Mortgage brokers who fail to provide the Director proof of their good-faith effort upon request and in the timeframe established within the request, shall be deemed out of compliance with Colorado law and are subject to disciplinary action.

3.	For information regarding errors and omissions insurance providers, visit the Division of Real Estate’s website at http://www.dora.state.co.us/real-estate/index.htm. 

4.	Applicants for licensure, renewal and reinstatement shall comply with this rule and § 12-61-903.5, C.R.S. in a manner prescribed by the Director.  Any licensee who so fails to obtain errors and omissions coverage or to provide proof of continuous coverage shall be subject to disciplinary action.

Section 5.	Effective Date

This emergency rule is effective December 26, 2007.