Mortgage Broker Bonds

Mortgage Broker Bonds

The mortgage industry is highly regulated, and the people who work in it are held to high standards. Mortgage brokers must be licensed by the states they work in, and most states require the purchase of a mortgage broker surety bond as part of the licensing process. Learn more about these bonds below, and request a quote from Surety Bond Professionals today.

What Are They?

As the “middlemen” linking borrowers and potential lenders, mortgage brokers handle a lot of sensitive personal information. A mortgage broker bond serves as a broker’s guarantee to operate entirely within the law in obtaining and handling that information and carrying out all duties of the position. The bond is intended to ensure the availability of funds to compensate any party who suffers a financial loss due to the broker’s unlawful or unethical actions.

Who Needs Them?

In all but a few states, anyone seeking to obtain or renew a license as a mortgage broker is required to purchase this type of bond. It a type of license and permit surety bond.

How Do They Work?

The agency that licenses mortgage brokers in each state is known as the bond’s obligee. The obligee determines the required amount (or penal amount) of the bond. This can be as little as $10,000 or as much as $150,000, depending on the state. The obligee also establishes what laws and regulations the mortgage broker must abide by in conducting business within the state.

The mortgage broker purchasing a bond is referred to as the bond’s principal. The principal is legally bound by the terms of the mortgage broker bond contract, and is responsible for paying all valid claims against the bond.

The third party to a mortgage broker bond agreement is the surety, the company that underwrites and issues the bond.

What If a Claim is Filed?

If the principal violates any of the terms of their mortgage broker licensing requirements, which spell out the legal requirements for remaining in compliance, any party who suffers a financial loss as a result of that violation can file a claim against the bond.

The first thing that happens when a claim is filed is an investigation by the surety to make sure that the claim is valid. If found to be valid, the surety will often pay the claim in advance on behalf of the principal. The principal must then reimburse the surety. An indemnification clause in every surety bond contract holds the surety harmless in such cases.

What Do They Cost?

The annual premium you will pay is only a fraction of the required bond amount established by the obligee. The surety’s primary concern when determining the premium rate is whether or not a bond applicant is creditworthy enough to reimburse the surety for any claims paid out on the principal’s behalf. Therefore, the main factor considered in setting the premium rate is the principal’s personal credit score.

Bond applicants with good credit will typically be assigned a premium rate of between 1% and 3% of the required bond amount. Those with poor credit may pay a higher rate.

Apply Now

Apply online for a mortgage broker bond today or call for a consultation with one of our experienced and knowledgeable surety agents.