What Is A Mortgage Broker Bond?
A mortgage broker bond is a licensed surety bond that is typically required in order to work as a mortgage broker. The bond is necessary if the clients of the bond wish to make claims against the broker if they violate the bond. The cost of the bond is used to pay back the clients to make up for lost damages.
What does a Mortgage Broker Bond Cost?
The typical cost for a bond is normally a small percentage of the bond price. This is known as the premium, and typically it is around 1% to 4% of the total amount being bonded. However, this is can vary due to the mortgage broker’s experience, their financial standing and even their credit score. For high risk candidates, the 1-4% of the price can become as high as 15%!
Why Do You Need A Mortgage Broker Bond?
The short answer is because the state requires the bond. The long answer is that states have come to recognize that some mortgage brokers act unscrupulously. When that happens, the damage is significant. So, in order to reduce the damage to borrowers against this type of potential devastation, many states require mortgage brokers to be bonded, which will help protect consumers against those mortgage brokers who don’t want to play by the rules.
Mortgage Broker Surety Bonds
There are homebuyers and lenders. Your work as a mortgage broker will be to help bridge the difference between the two. Your job will be to help the potential homebuyers find the best deals possible from a lender.
Being the intermediary of the two, you create many opportunities for either party. Some of these opportunities can be exploited for financial gains, usually with one party getting a raw deal out of it or getting ripped off. One of the parties, or both, could end up suing each other, you, or the state to get some respite for the wrongs done to them.
Mortgage Company Bond
As a result, the various states came up with legislations that require mortgage brokers to purchase surety bonds as part of the licensing procedure. This surety bond is to help keep the mortgage brokers honest, and to provide funding should the mortgage broker not fulfill their end of the bargain.
Who Needs A Mortgage Broker License?
There are various professionals who work within the mortgage industry. All these professionals have their own separate codes of ethics, and they have different licensing requirements. This means that certain professionals may be licensed at a higher standard than others, but it depends on the state. No matter what, each Mortgage Broker is required by law to have a license.
Here is information on a Arizona Mortgage Broker Bond
Mortgage Broker Bond Cost
Varying from state to state, Mortgage Broker Bonds can cost from a mere $10,000 to $500,000. This changes from state to state, and what is being purchased. Now, you won’t have to pay the full $500,000 or even the $10,000. What you will pay is called the premium, and is typically within 1% and 4% of the full bond cost.
For Current Mortgage Broker Licensees
Find out if the bond needs to be adjusted when filing the Q4 Mortgage Call Report due on February the 14th. The bond amount could be adjusted by March 31st.
|Loan Volume in Millions||Bond Amount|
Frequently Asked Questions
When can I adjust my bond amount?
A mortgage Broker licensees can change amount of their bond amount once per year. Once you have filed the Fourth Quarter mortgage call report, you can determine the loan volume. Following this, deliver the rider that will adjust the amount of the bond to NMLS by the 31st of March.
How do I increase or decrease my bond amount?
In order to change the bond amount, you will need to communicate with your surety that issued the bond. In many situations, they will send out a bond rider that increases or decreases your bond amount. The rider is sent out electronically through the NMLS, but you will still need to send the rider through the NMLS to the department regulator.
Mortgage Surety Bond Requirements By State
|State||Amount of bond ($)||Remarks|
|D.C Washington||12,500 – 50,000||Broker bond/dual authority/lender|
|Kentucky||50,000/250,000||Broker bond/company license|
|Massachusetts||75,000 – 500,000||Broker bond|
|New Hampshire||50,000||Broker bond|
|New Jersey||150,000||Broker bond|
|New York||10,000||Broker bond|
|North Carolina||75,000||Broker bond|
|North Dakota||25,000||Broker bond|
|Pennsylvania||50,000 – 500,000||Broker/Lender/Servicer bond|
|South Carolina||25,000||Broker bond|
|South Dakota||25,000||Broker bond|
|West Virginia||$50,000||Broker/Lender bond|
|Wisconsin||$120,000 – $300,000||Broker/Banker/Loan origin bond|
This table does not include all 50 states, as the states not listed do not have a requirement for a mortgage broker bond, but have bonds for the other mortgage officers and companies.
Mortgage broker surety bonds guarantee consumers a minimum level of protection against fraud, legal representation and professional competence. Most states require mortgage broker surety bonds as a condition of their mortgage broker licensing process. The surety bond requirements vary by state but generally are between $10,000 and $50,000. These bonds allow the state and consumers a minimum amount to recoup expenses, fines and minor damages for failures by the mortgage broker to adhere to the laws of their state, including consumer protection laws against such things as pressure sales tactics, disclosure failures, unnecessary or exorbitant fees and even instances of fraud.
Mortgage broker surety bonds are no substitute for errors & omissions or professional liability insurance. They are also no substitute for crime or fiduciary coverage.
Mortgage broker surety bond premiums vary by the bond amount and the credit worthiness of the applicant. Newer firms can generally expect to pay more than more established firms of the same size.