Surety Bond News

A Mortgage Broker is defined by Wikipedia as “a person or company that acts as an intermediary who sells mortgage loans on behalf of individuals or businesses�.

Years ago, banks and other lenders had sold mortgages on their own thus controlling the now competitive market. Today, the mortgage business has evolved into a very competitive market and the role of a Broker has gained popularity. The role of a Broker has also surpassed the role of banks and other lenders to become the largest sellers of mortgages. These roles are regulated by each individual state and the Broker must be licensed to sell in their state.

There are numerous tasks of the Mortgage Broker and the proper management of these responsibilities typically put themselves and their company’s reputation on the line both financially and ethically. They handle all of the marketing and share a large part in the advertising that will attract a client to their firm. They also handle some of the more tedious work like background and credit history of a perspective client. This is a function that saves the actual mortgage company valuable time and effort. This would include income verifications of the client to make sure they even qualify for the programs available. By handling these verifications & history checks, the Broker can assess exactly what program will fit the needs of his client. The Broker also assists the client in the pre-approval process which will allow their client to shop for a home at their leisure with a more competitive edge.

When it comes time for the mortgage to be signed, the Broker does the legwork of gathering paystubs, insurance documentation, and bank statements that will prove to the mortgage company they can handle repayment of the loan. They will also handle the lender application forms which insure that they are completed correctly and in their entirety. The most beneficial function that the Broker handles at the signing of the mortgage is the explaining of the legal documents the client is signing and making sure they are signed and completed correctly.

According to a study conducted in 2004 by the Wholesale Access Mortgage Research & Consulting, Inc., there are approximately 53,000 Broker companies which employ approximately 418,000 employees which account for 68% of the residential loans in the United States. It is estimated that number increased to roughly 80% in the year 2007. At this point with the economy in a struggle, the smaller Brokers are struggling to survive.

Today, Mortgage Brokers that have survived are more competitive due mainly to their access to pricing discounts and capital markets. The Broker typically has much lower overhead costs compared to the large banks and lending institutions. They also have the advantage of lowering rates instantly to compete for their clients. This is allowing them to control 60% to 70% of the market. So, the next time you are looking for a mortgage check out your local Mortgage Broker and compare the rates and services — you may be surprised.

In the past two years, many things have changed in operations of the underwriting departments of Surety Companies nationwide. To start, the criterion had been minimal and the premiums were low prior to 2006. In addition, many Mortgage Brokers have filed Bankruptcy in the past two years leaving the Surety Companies on the hook to pay any outstanding claims. Hence, these have impacted a change in the underwriting process and higher premiums for bonds.

There are many factors that a Surety company will take into consideration to come up with a premium for a Mortgage Broker Bond. One of the important factors that the Surety Companies are now scrutinizing is personal credit of the owners of the company. Typically, any owner of a company applying for a bond and showing over 5% interest in ownership must be listed on the agreements for a bond. A company applying for a bond is only as strong as its weakest link. The basis of the premium will end up being based on the owner with the worst credit. This means if all owners of the company have great credit and one owner is having credit issues the basis for the premium will be the owner’s reports with the credit issues.

Another aspect that the Surety Companies are looking at is the liquid assets of each owner of the company. They want to make sure that in case there is a claim against a bond that the company or owner of the company can cover the claim up to the specified amount of the bond. Additionally, as the net worth of a mortgage companies goes down, it will become harder for them to qualify to obtain or renew their surety bonds they have in place. Also, litigation against mortgage brokers and lenders has made it more difficult to get approval for a surety bond. This is also the reason that most Surety Companies require a spousal indemnification (signature of responsibility) from the spouses of each owner. This will prevent a company owner from transferring all of his or her assets to their spouse and closing up shop. This demonstrates accountability on the part of the small business owner.

Unfortunately, one of the last criterions that a Surety Company is concerned with is the experience that a broker may have in the Mortgage Industry. While it is somewhat important to the Surety, the industry as a whole has shifted to operate as a higher risk industry. Start-up companies are being especially hard-hit by the new underwriting climate, since many of the surety bond companies refuse to underwrite surety bonds to new companies.