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Considerations when shopping for Surety Bonds

February 20, 2009 by Matt Gerdes

As a consumer of any type of purchase, the first thing that comes to mind for consideration is the final cost of the product. This same methodology rings true when shopping around for your surety bond needs, but this should not be the purchaserâ€™s only concern. Aside from the bottom-line cost of the bond, there are several other factors that should be taken into account before settling down with the agency that is writing your bond. These include the suretyâ€™s financial strength, the requirements that must be met for the renewal of the bond, as well as attentiveness from the agency that will be writing the bond.

A good rule of thumb when doing a background check on a potential surety is looking up the Federal Treasury list. Every year surety companies are rerated by organizations like A.M. Best. They are given a letter grade that corresponds with the information submitted. Any agent worth a grain of salt will have this information readily available for you, as they represent the surety.

It is a good idea to find an agency that has experience in the industry that you are getting your bond in. The more experience the agency has will ease the transition and help with the expedition of the bonding for your industry.

When it comes down to the requirements that must be met for the renewal of the bond, there is a considerable difference from company to company. Some sureties will ask for periodical financial updates on the account that they have with their clients. These include, but are not limited to business financial statements such as balance sheets and profit and loss statements, credit reports as well as personal financial statements for the ownerâ€™s of the company. These updates are used for the guidelines that are established by the bond companies themselves, if at any time the requirements are not met, the bond will simply be terminated despite the how long the bond has been continuing.

Perhaps one of the most important and overlooked factors when determining a bonding agency is their customer service. Donâ€™t be afraid to ask for referrals and client testimonials from the agency. Bond agencies should provide friendly customer care service. Another consideration should be the ability to quickly and efficiently turn bonds around and get them to their clients, especially if it is a contract bond. A strong relationship with a good agent can even yield helpful advice and alternatives even if they are unable to get to provide the desired bond.

Just like anything else that is purchased, there is more to buying a surety bond then just the cost of the bond itself. It is always a wiser decision to weigh all of these factors when considering any potential agency providing bonds so that you get a complete package that is right for you.

How is the rate for a Mortgage Broker Bond determined?

October 1, 2008 by Rick Bredow

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 ownerâ€™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.