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The terminology used in the mortgage industry and the laws that apply in different states can make the subject of mortgage broker surety bonds a little confusing. To provide a definition, let’s start with what mortgage brokers do. Mortgage brokers specialize in helping people find the best mortgage loans for their specific needs. A mortgage loan originator works with the borrower to obtain a mortgage and may also be a mortgage broker or the employee of a mortgage broker.
There are several different types of surety bonds that are commonly required in the mortgage industry, and it’s important to be clear as to which type you need:
These are all forms of a license and permit bonds required as part of the process for licensing in the mortgage industry. Their purpose is to protect the state agency that licenses mortgage professionals and consumers seeking mortgages by guaranteeing that the mortgage broker abides by all applicable rules and regulations governing the profession.
It’s not uncommon for mortgage brokers to do business in more than one state, which requires them to be licensed in multiple states and purchase a bond in each state that they operate in. Any mortgage broker applying for a license in states requiring a surety bond typically must keep a mortgage broker bond in order for the license to remain valid. Some states mandate specific surety bonds for different kinds of mortgage professionals while others take a “one-size-fits-all” approach that imposes the same bonding requirements for all mortgage professionals.
Like all license and permit bonds, a mortgage broker bond protects consumers against the principal’s illegal and unethical practices, such as approving a loan that is beyond the client’s ability to pay or knowingly accepting false information from a mortgage applicant. The terms of each bond spell out the specific grounds for claims by consumers who suffer a financial loss due to the actions of the broker.
The surety company will determine the validity of any claim against the bond and will pay valid claims up to the full bond amount, including legal fees. The surety company will then pursue the mortgage broker for repayment of the amount paid out on a valid claim.
The bond amount required is established by the state. Some states require the same bond amount for all brokers, while others base it on loan volume. To determine the cost, the bond amount is multiplied by the premium rate to determine the annual premium a given applicant will pay. The premium rate is set on a case-by-case basis depending on the applicant’s personal credit history.
Mortgage brokers with good credit will usually pay one to three percent of the bond amount, while those with poor credit will pay as much as ten percent, depending on the state and the particular surety company’s underwriting policy.
Use our convenient online system to apply for a mortgage broker surety bond today.