Mortgage Matters

I asked Adam Turkewitz of Wells Fargo to comment on one of the challenges buyers trying to get a mortgage are likely to face as a result of the new lending environment we're in today:

What is Fidelity Bond Insurance? A fidelity bond is a form of protection that covers policyholders (in the case of a cooperative apartment - the shareholders) for losses that they incur as a result of fraudulent acts by specified individuals (in the case of a cooperative apartment - members of the board and managing agent). Fidelity Bond Insurance is synonymous with Employee Dishonesty Policy.

What type of coverage is sufficient? The amount that needs to be evidenced as fidelity bond insurance is constantly evolving depending on the amount of maintenance the building collects for the year. When we look at the audited financials for a building, we are looking at the maintenance that the building took in. The insurance should be for 3 months worth of maintenance for the entire project. As an example, if the maintenance collected in 2008 was $1,200,000 the building would need to have $300,000 worth of Fidelity Bond Insurance. Furthermore, we require that the managing agent rider be apart of the fidelity bond insurance.

How did I come up with that amount for coverage? Simple...

$1,200,000 / 12 (months) = $100,000 * 3 (months) = $300,000

Do all buildings need this? No. Any buildings with less than 20 units are exempt from carrying fidelity bond insurance. Any building 20 units and over are required by Fannie Mae to have this type of coverage.

Adam W. Turkewitz, CMPS
Private Mortgage Banker
Wells Fargo Home Mortgage
N2652-151
530 Fifth Avenue, 15th Floor
New York, NY 10036
(212) 805 1172 Office
(516) 456-3687 Mobile
(646) 253-7788 Fax
adam.turkewitz@wellsfargo.com
https://www.wfhm.com/loans/adam-turkewitz/index.page