On July 11th, the Seventh Circuit held that a mortgage bankers bond does not cover losses incurred by a lender who had to repurchase its mortgage-backed securities ("MBS") from investors because a dishonest employee funded substandard loans included in the MBS. The bond covered losses directly caused by dishonest acts of employees. A financial loss resulting from contract liability to third parties is not directly caused by employee misconduct. Additionally, an exclusion in the bond bars coverage for losses resulting from loan-repurchase obligations. Universal Mortgage Corp. v. Wurttembergishce Versigherung AG.