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Mortgage Broker Bonds are required to broker or originate mortgages in many states. Learn how to easily obtain these bonds, what they cost and what they guarantee.
Mortgage Broker Bonds protect those applying for mortgages by ensuring that mortgage brokers and mortgage originators comply with laws, rules and regulations of the industry. Should the mortgage broker or originator not follow the laws, a claim can be made against the Mortgage Broker Bond.
Although laws vary by state, most codes require a mortgage broker or originator to be licensed, to disclose fees, and interest, hold deposits in trust, and act in an ethical manner. Most codes also require that the mortgage broker or originator be licensed in all the jurisdictions where mortgages are being originated.
Most mortgage brokers and originators pay 1% or less of the bond amount per year. However, newer brokers or those with credit challenges may pay as much as 3% per year. Keep in mind that these bonds must be renewed each year and the premium will be due annually as well.
Mortgage Broker Bond amounts vary depending on the state.
Mortgage Bonds in most states are easily issued. Most can be purchased online and issued instantly with just a credit check here. However, larger mortgage brokers, lenders and originators may qualify for significantly better pricing by providing company financial statements once a year. The stronger the financial statements and experience, the better the rates.
Claims against Mortgage Broker Bonds are rare. However, they may increase in times of economic downturns or increasing interest rates. In these environments, it is more likely that an applicant alleges that a broker or originator should have known that the mortgage was unaffordable or other claims.
A claimant having issues with a mortgage, originator or broker can contact the Consumer Financial Protection Bureau. A claim can be made by contacting the Surety Bond Company writing the Mortgage Broker Bond. The Surety Bond Company has a duty to investigate the claim to make sure it is valid. If the bond company pays a valid claim, they will then seek reimbursement from the mortgage broker or originator under the indemnity agreement.
The most the Surety Bond Company must pay is the amount of the Mortgage Broker Bond. This is usually significantly less than the mortgage itself.
A Mortgage Broker Bond is a type of surety bond and is not insurance. These bonds are written for mortgage brokers and originators under the assumption that no losses will occur. If a claim does occur, the mortgage broker, lender or originator will be responsible for reimbursing the bond company. You can read more about the differences between bonds and insurance here.
Some states allow alternatives to Mortgage Broker Bonds. For example, Colorado Code allows a mortgage broker, lender or originator to deposit funds in a savings or deposit account, or provide a Certificate of Deposit. Other states may allow an Irrevocable Letter of Credit. Usually, a surety bond is a better alternative. Not only are bonds cost effective, they also do not tie up assets that could be used for other purposes. You can read more about the pros and cons of surety bonds against cash or ILOCs.
Mortgage Broker Bonds are required in most states for anyone licensed to sell or originate mortgages. These bonds are inexpensive and easy to obtain. However, claims against these surety bonds should be avoided at all cost. Mortgage Brokers may also need other surety bonds and can find common questions about bonds here.
