Semantical Bank Insurance Silliness

For the 238,000th time, I have been asked why insurance is so unnecessarily complicated…

I have no good response. In 40 years I never have. Probably will not 40 years from now.

Regulators and some insurers call two different policies “Mortgage Errors and Ommissions.”

The first is coverage for a borrower who fails to buy insurance after you close a loan – protection against “no insurance.”
Example…  You close on a loan. At closing the borrower shows an insurance binder covering the house (AKA homeowners insurance).  Two years later the house burns and you find that the borrower failed to renew their insurance. The loan forecloses and you have lost your collateral.  That is the first type of mortgage E&O. It protects the borrower’s interest in the collateral. This is also commonly called “mortgage impairment insurance.”  That is what everyone should call it! Further, this policy almost always requires the bank to employ some process of tracking insurance coverage purchased by the borrower.
The second is really a liability coverage – insurance against a lawsuit.  Your lender does something improper and a lawsuit is brought against you by the borrower.  Perhaps a loan is declined or foreclosed on…  A better name (and more common name) is “lender liability insurance.” This is the correct name.
To add to the confusion, there is “Blanket Mortgage Insurance.” This. I define as insurance coverage that is triggered by a loss at a mortgaged property by an insured peril plus the discovery that there is no insurance in place by the borrower. This policy never requires a process of customer insurance tracking.
To summarise:
Mortgage Impairment – Insurance coverage that is triggered by a loss at a mortgaged property by an insured peril plus the discovery that there is no insurance in place by the borrower. This policy requires a process of customer insurance tracking.
Blanket Mortgage Protection – Insurance coverage that is triggered by a loss at a mortgaged property by an insured peril plus the discovery that there is no insurance in place by the borrower. This policy never requires a process of customer insurance tracking.
Lender Liability – Insurance for lawsuits against the financial institution for claims of wrongful acts in the lending transaction.
Class dismissed. Stepping down from my soapbox…