In most states, mortgage lenders, brokers, servicers, and loan originators must obtain a surety bond prior to being granted their license. To make this process easier for you, our team of surety experts have crafted an expeditious guide on bonding specifically tailored to mortgage professionals.
What is a Mortgage Broker Bond?
Mortgage bonds are created to safeguard homeowners in the process of attaining mortgages and are needed for most mortgage brokers to obtain state licensure.
These types of bonds provide your clients with legal protection. They act as an insurance policy, protecting clients from any harm caused by a broker’s actions, including fraud or misrepresentation. Each state has its own set of regulations and requirements for mortgage professionals, and the bond amount may vary depending on the total amount of the original mortgage loan and the mortgage originator.
In the event that you fail to adhere to the regulations set by your state, claimants can make demands against it for which you are responsible. Depending on the contractual language of the bond, clients may receive financial compensation should a mortgage professional engage in activities that violate the bond terms and result in financial harm for the client. Say, you approve a customer for a loan despite knowing they won’t be able to pay it back; then an accusation can be placed upon the bond.
As every state has their own unique rules and regulations, loan originators must consider investing into additional personal loan bonds in addition to the mortgage broker bond that the company holds.
If you, as a licensee, are making residential loan payments to multiple mortgage originators, the insurance commissioner reserves the right to demand that your insurer increase your bond amount. This decision will be based on the full value of both your original mortgage and the originator associated with it.
Who Needs a Mortgage Surety Bond?
Almost anyone working in the real estate industry needs a mortgage surety bond of some kind. The type of mortgage sureties required varies depending on the state in which you’re operating. Some states may have requirements that apply to all mortgage professionals while other states have specific requirements based on the type of mortgage license. The best way to know what is required in your state is to reach out to the government agency responsible for regulating mortgage professional licensing in your state. It’s up to you to determine which bonds you need, but JM Surety is here to assist you if needed.
Types of Mortgage Licenses
Obtaining a surety bond can be crucial to holding four distinct mortgage licenses: brokers, lenders, originators, and servicers. Without this bond in place, license-holders may not meet the requirements for their job’s legal fulfillment.
An effective mortgage loan process necessitates a high level of expertise and precision from all parties involved. Mortgage lenders, brokers, originators, and supervisors are especially crucial in supporting borrowers through the entire application procedure. Without their keen attention to detail throughout this journey, obtaining financing can become much more complex than necessary.
Banks and other financial institutions offer mortgage underwriting services to protect you in cases of a potential financial disaster, like foreclosure. Every contract is carefully crafted by the lender.
Mortgage brokers act as a vital connection between the licensee and the bank, guaranteeing that all documents are filled out accurately and approved in accordance with regulations.
Mortgage originators are the initiators of mortgage loans and collaborate with borrowers to efficiently finish the loan process.
A mortgage servicer is an entity that processes monthly payments from a borrower over the term of their loan. From sending and recording payments to negotiating defaults, as well as managing foreclosures; they are accountable for a variety of tasks.
How Does a Mortgage Surety Bond Work?
Like all bonds, a mortgage surety bond is a three-way agreement between the consumer wishing to obtain a mortgage (obligee), the mortgage broker (principal), and the surety company that provided the bond.
If the broker does not fulfill their obligations to a client and the client then suffers financial harm, then they are able to file a claim against the bond. If the claim proves valid, the surety company backing the bond financially reimburses the client following the bond terms. The mortgage broker will then need to reimburse the surety company in full for the compensation to the client.
Mortgage broker bonds also benefit the broker. They act as a guarantee to the client that the broker will fulfill their obligations. This acts as a show of good faith between broker and client. Even if your state does not require you to have a mortgage bond, you can benefit from having one.
How Much Does a Mortgage Broker Bond Cost?
Bond amounts and licensing are determined at the state level for mortgage lenders, brokers, and servicers. The cost of your bond will be equal to a percentage of your total bond amount. Your personal credit score plays a significant role when it comes to the cost of your bond. However, some sureties will also take personal and business financials and other factors into account.
With good credit, your bond premium will generally come in between 1% and 4% of the total bond amount. You can reduce the cost of your bond premium by improving your credit score, providing strong business and financial statements, and working with a professional and certified surety bond agency such as JM Surety.
What if I Have Bad Credit?
Bankruptcies, bad credit, or other financial complications may cause challenges when it comes to getting your bond. However, JM Surety offers competitive rates to applicants who don’t qualify for preferred rates. Call us for more details about how you can get your mortgage broker bond.
How Can I Get My Mortgage Broker Bond?
Apply for your bond with JM Surety and we’ll provide a free, no-obligation mortgage broker bond quote. You’ll then apply for the bond and once you’re approved and your payment is processed, the bond will be issued. You’ll get a copy of your bond immediately and we’ll upload it to the NMLS website or ship it to you overnight. From there, you’ll sign the bond, make a copy for yourself, and send the signed bond to the state along with any other required paperwork.