Novato, Calif.-based Bakerjian Insurance Services (BIS) has launched Lenders Misrepresentation Insurance (LMI), a new insurance product designed to protect lenders against potential damage from repurchase demands. The policy compensates the lender if the loan is put back by an investor because of material financial misrepresentation in the borrower's loan file, BIS says.
‘Loan-loss reserves provide dollar-for-dollar protection and you retain the risk, but LMI provides a "multiplier of protection' for every dollar of premium, and the risk is transferred to the insurance carrier,’ explains Stephen Bakerjian, president and CEO of BIS.
The LMI structure provides several advantages as a risk management tool, Bakerjian says, noting that loss reserves can be treated as retained earnings on a lender's balance sheet.
‘With LMI, you can get better protection for a lower cash outlay, and the premium is treated as an expense, so it's tax deductible,’ he says.
SOURCE: Bakerjian Insurance Services