Mortgage Broker Bonds
Careers in the mortgage industry can be stable, have high growth potential (it's lucrative), and be incredibly rewarding. Plus, your job will be helping people get loans to purchase a place to live, making it both personally and professionally satisfying to work as a mortgage broker. Do you think you have what it takes for this role? If so, you will need to start by meeting some conditions upfront, one of which will be obtaining a mortgage broker surety bond. This article covers the basics.
What is a Mortgage Broker Bond?
A Mortgage Broker Bond is a commercial license surety bond that could be a required condition of gaining a license to operate as a mortgage broker.
Mortgage Broker Bonds involve three parties:
- The principal is the mortgage broker who purchases the bond to prove that their business is trustworthy. The principal must take financial responsibility for any claim filed against the bond.
- The obligee is the state, and the mortgage broker's clients, who can make claims against the bond if the mortgage broker violates provisions of the bond. As long as those claims prove to be valid under investigation, the surety guarantees payment.
- The surety is an underwriter who issues the bond to the mortgage broker. The surety also backs the bond, meaning it agrees to pay any valid claims when the principal can't or won't - but the surety does not accept the final financial responsibility. If and when they settle a claim, the principal must pay that debt back in full with interest and fees included in the cost.
When Do I Need a Mortgage Broker Bond?
In many states, mortgage brokers need to purchase a surety bond in order to become legally licensed. The state will not issue you a license until you can prove you have the required mortgage broker surety bond.
Usually, you are required to hold a Mortgage Broker Bond for as long as you maintain your mortgage broker license. If you perform the services of a mortgage broker without either a license, bond, or either, you could be subject to fines and penalties, including being barred from ever obtaining a license again.
Laws that regulate mortgage professionals vary by state. Some states have bonding requirements that apply to all mortgage professionals while others have specific requirements that vary by profession. Contact a Viking Bonds agent and we will help you understand your mortgage broker surety bond requirements.
What is the Purpose of a Mortgage Broker Bond?
State laws require mortgage broker surety bonds to protect the state and public against potential losses resulting from actions by the mortgage broker that violate state laws and regulations. These laws exist to keep the housing industry fair and to hold unscrupulous mortgage brokers accountable. Without a bond in place, homeowners would have a far more difficult time seeking justice and financial compensation from brokers who bend or break the rules.
How Does a Mortgage Broker Bond Work?
When the state agency responsible for regulating mortgage brokers believes that an individual broker has violated state laws, the agency may file a claim against the surety bond. The claim is for compensation equal to the damages caused by the illegal behavior.
The surety will investigate every claim it receives to verify that the details happened as claimed. Then, the surety will settle all valid claims, in effect guaranteeing payment to the state agency.
Since the surety only acts as an intermediary and does not have financial liability, they will turn their focus after settling a claim to collecting that same amount from the bond holder. The mortgage broker whose actions initiated the claim has financial liability for that claim. Until the mortgage broker repays the debt to the surety, the bond process is not complete.
Who Needs a Mortgage Broker Bond?
If you plan to work as a mortgage broker, plan on getting a mortgage broker surety bond. You will need both a license and a bond no matter what state (or states) you end up working in. That means you will need to plan for surety bond costs when preparing to start your career.
You will also need to seek out a surety bond provider who can issue the required bond. Since the process can't move forward until you have a bond, don't delay getting one. Viking Bond Service is here to answer all your questions and meet all your bonding needs.
Mortgage Broker License Requirements
Every state requires mortgage brokers to have a license and sets different requirements for earning a license. One requirement that is consistent across all states is the need for a mortgage broker surety bond.
Aspiring mortgage brokers will need to show proof of having the required mortgage broker bond, among other requirements, before any state will license them. They will also need to prove they have an active mortgage broker bond in good standing during the license renewal process.
In all states, the mortgage broker license requirements make it clear that professionals in this industry need a bond from the beginning of their career to the end.
Benefits for the Obligees:
In the case of wrongful action on the part of the mortgage broker, the state or the mortgage brokers' clients can make a claim against the Mortgage Broker Surety Bond to seek financial reparations. They can seek damages to cover the total cost of any negative behavior on the part of the mortgage brokers. Payment is guaranteed for valid claims up to the value of the bond. For a bond valued at $50,000, for example, the surety will not pay out $75,000 in damages.
Benefits for the Principal
It might seem like mortgage broker bond requirements only put new obligations and added costs onto professionals in the home loan industry. And while it's true that bonds come with financial liabilities, they come with benefits for the bonded principal as well. For one, bond requirements keep unscrupulous professionals out of the industry since they won't be able to get a bond or license.
Mortgage broker surety bonds also instill trust in mortgage brokers. People are more willing to work with unknown brokers since they know those brokers have an incentive to avoid misconduct and have a liability to pay if they don't. The truth about mortgage broker bonds is they're good for the industry and good for the brokers who must get them.
How Much Are Mortgage Broker Bonds Written for?
The amount of the Mortgage Broker Bond depends on the state, the broker's credit, and the annual volume of loans closed by the broker. In most states, there is a legal minimum amount, with increases applied based on the broker's particular credit and loan history. Your bond amount could range anywhere from $10,000 to $100,000, depending on your profile and the state in which you acquire your bond. Keep in mind that the cost of a mortgage broker surety bond is only a fraction of the total value. Mortgage brokers who need a six-figure bond will not pay anywhere near that amount.
How Much Do Mortgage Broker Surety Bonds Cost?
The cost of a Mortgage Broker Bond is calculated as a percentage of the bond amount, depending on the broker's credit. Usually, the cost is around 1-3% of the total bond amount. If you have bad credit, you may still be able to secure a Mortgage Broker Bond, but you will likely have to pay a higher percentage. For help getting a bond with bad credit, rely on the team at Viking Bond Service - we have special resources available to help more people get the bonds they require.
How to Get a Mortgage Broker Bond
Credit score is the most important factor in securing a Mortgage Broker Bond. You will also need to complete a standard bond application with information about your history, financial standing, and business background.
Underwriters at the surety evaluate each application individually and may require additional documentation about your finances or business before they make a decision about whether to grant the bond and how much to charge.
Expect to get a quote back from Viking Bond Service in as little as 24 hours. The surety will provide a document proving someone has the required bond once they pay the premium.
Mortgage broker bonds remain active for 12 months, after which they require renewal. Renewing a bond works much like getting one in the first place. The surety will run a new credit check and ask for an updated application. Then, they will calculate a new premium price based on any changes in credit standing. Bond prices may go up or down with each renewal.
Request a Mortgage Broker Bond Quote from Viking Bond Service
To get a quote as quickly as possible, complete our easy online application. To get more information at any time, call us at 1-888-2-SURETY (1-888-278-7389) or complete the contact form on this page.
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