Before we dive into all the different reasons you may need a mortgage broker bond, let’s explain the definition. A mortgage broker bond is a specific type of license surety bond. This and all other types of surety bonds hold the bonded party (in this case the mortgage broker) financially responsible if he or she violates state laws governing the mortgage industry – eg. if a broker approves someone for a loan well beyond his means to repay.
If and when a broker violates state law, the person who was seeking a home loan may file a claim against the mortgage broker bond seeking damages in the form of financial compensation. As long as the claim describing the damages holds up as true under investigation, the surety company that issues and backs the bond automatically settles the claim in full. At that point, the surety will use whatever legal means necessary to collect the amount of the settlement (plus interest and fees) from the mortgage broker – the person with financial responsibility for all claims under the terms of the bond agreement.
Mortgage Broker Bonds: 5 Reasons you need them
Now that you understand the basics of how mortgage broker surety bonds work, explore all the different reasons you must obtain one if you plan to work as a mortgage broker:
- State Laws – All 50 states require someone to have an active mortgage broker bond before they’re allowed to broker for home loans and at all points afterwards. There is no leeway around this requirement; bonds are mandatory for all mortgage brokers in all states. Every state requires this surety bond because it’s an effective way to regulate a sensitive industry and hold parties accountable when they disregard the law.
- Licensure Requirements – When you apply for a license to become a mortgage broker (required in all 50 states), you must submit documentation proving you have an active mortgage broker bond that meets the state’s requirements. The state will not approve you for a license without a bond, and they can revoke your license if they discover your bond has lapsed. For all professions, including mortgage brokers, that require the state’s blessing to work legally, keeping a license in good standing is among the highest business priorities. Therefore, having a mortgage broker surety bond is too.
- Stiff Penalties – If the state agency responsible for regulating mortgages catches a broker operating without a bond or without a license, there are penalties. Those can range from a small fine for a relatively minor misdeed, to a much larger fine. In the worst instances, the state may revoke someone’s mortgage broker license and their right to ever obtain a new license – effectively shutting them out of the mortgage broker industry in the state. Hopefully this illustrates the stakes for not following the rules and highlights the importance of having a mortgage mortgage broker bond at all times.
- Business Opportunities – People put tremendous faith in their mortgage broker to facilitate the sale of a home – one of the most expensive and important purchases a person will ever make. They need to trust their broker completely to be honest and look out for their interests. Mortgage broker bonds help establish that trust. Since bonds hold brokers financially accountable for illegal behavior, they help to discourage that behavior. And by giving mortgage seekers a way to recoup any losses they suffer, a mortgage broker surety bond makes it feel less risky to rely on a broker. Some brokers highlight the fact that they’re fully bonded as a way to attract clients looking for an honest professional to work with.
- Industry Enrichment – Having a mortgage broker surety bond may be a requirement – and one with serious consequences if not followed – but the bond requirements that exist in all 50 states ultimately benefit all mortgage brokers and the home buying and lending industries as a whole. By holding manipulative and exploitative brokers accountable and keeping disreputable characters out of the mortgage industry, surety bonds uphold the character of the industry as a whole. They help people feel confident taking out mortgages and ensure the home lending system proceeds without unnecessary disruptions. The extent to which mortgage broker surety bonds enrich the industry exceeds the cost of the bond itself. Most seasoned brokers are glad the bond requirement exists.
Viking Bond Service – A Partner to Mortgage Brokers Everywhere
For something as important to your career as a mortgage broker surety bond, you need the right surety bond partner. Brokers nationwide work with Viking Bond Service because we meet all their needs as efficiently and affordably as possible. As a leading surety bond provider, we can issue the exact bond you need in all 50 states, and make the process easy from beginning to end. Unlike many other surety bond providers, we serve applicants who have bad credit. Get more information about your bond by calling us at 1-888-278-7389 or by sending your questions through the contact form on this page. You can also get the bonding process started now. Complete this online application, and expect to get a quote for a mortgage broker bond within 24 hours!