What is a Mortgage Broker Bond?
Mortgage broker bonds are legally binding contracts that protect your clients. If you break the regulations set by your state, your clients can make claims against it which you’re responsible to pay. For example, if you approve a client for a loan you know they cannot repay, a claim can be filed.
Each state's regulations and requirements are different. A loan originator may need to purchase a personal loan bond, in addition to the mortgage broker bond that the company already possesses.
If a licensee pays more than one mortgage bond originator, the insurance commissioner may decide to require a higher bond amount. This can occur to licensees that make residential loan payments. In this case, the commissioner will base the decision on the total amount of the original mortgage loan and the mortgage originator.
You can learn more details in our in-depth guide on how to become a mortgage broker.
Types of Mortgage Licenses
There are a lot of moving parts in the mortgage lending process. Mortgage lenders, brokers, originators and supervisors are a few of the people that work to help borrowers obtain mortgage loans.
A mortgage loan is a form of a mortgage broker bond that the borrower promises to pay at a later date. To successfully receive the loan the borrower must complete a process but submitting documentation of their financial and work history to verify their creditworthiness.
A mortgage lender is a bank or financial institution that offers underwriting services for home loans. The contract guarantees payments in case of a financial loss like a foreclosure.
Mortgage brokers work as a liaison between the licensee and the bank. They organize and approve documents, ensuring that they meet all the required guidelines.
Mortgage originators are the original lender and work with the borrower to complete the mortgage loan process.
A mortgage servicer is an institution that the borrower makes monthly payments for the life of the loan. They are responsible for sending out and recording payments and default negotiations as well as overseeing foreclosures.
Although the process can take time, it will ensure that safeguards are in place to process the bond in accordance with the state’s regulations. In the next section, we’ll discuss the requirements for a mortgage broker bond.
Mortgage Broker Bond Requirements: Step-By-Step Guide
#1: Determine Your Requirements
Find out your bond requirements by selecting your state from the list below. Some states require separate mortgage broker bonds for branch locations and each loan originator. Also, if you want to operate in several states, you’ll have to obtain a mortgage broker bond in each state that requires them.
If you need help with obtaining your license or determining the bond requirements, you can check out our online mortgage broker license guide.
#2: Get Approved for Your Bond
Once you determine the bond requirements you must meet, your next step is to apply for your mortgage broker bond and get instantly approved.
#3: Sign and Submit Your Bond to the State
After you receive your surety bond, you must:
- Sign your bond
- Make a copy for your records
- Send the signed bond to the state (along with any other important paperwork provided by the state or bond agency)
Once you’ve completed the mortgage broker requirements and sent your signed bond to the state, they will send you a mortgage broker license. This process can take anywhere from one to three weeks depending on the state and its workload.
What Do Mortgage Broker Surety Bonds Cost?
Costs are a percentage of the bond amount required of you, which is based on personal credit. Continuing with our previous example, surety bonds in California are based on the original intent by the licensee. The aggregate dollar amounts are based on the previous year's residential mortgage loan.
|Aggregate Loans||Bond Amounts|
|0 - $1,000,000||$25,000|
|$1,000,001 - $50,000,000||$50,000|
|$50,000,001 - $500,000,000||$100,000|
For more details, Read our guide to learn more about how your bond costs are determined.
Bond Claims Can Put Your Assets at Risk
You’re responsible to pay bond claims in full which can be as large as the full bond amount (including legal costs). The indemnity agreement you must sign to obtain your mortgage broker bond is a legal contract that pledges your corporate and personal assets in the event of bond claims.
Watch our video for an explanation of how bond claims work. Unfortunately, most bond agencies won’t take the time to explain how claims can put you at risk and how to avoid them; if this happens when working with a bond agent it should be a big red flag to re-evaluate doing business with them. Keep in mind, it's crucial that you work with an expert in the surety industry. Learn more about how to ensure you choose the proper bond company.
Save Money on Bond Claims
Your bond agent should be your first line of defense against bond claims. In order to avoid bond claims, ensure you conduct your business professionally and ethically, while following the rules of your bond.
Remember, you’re responsible to pay for bond claims that you cause. Learn how our company can save you money on claims. If you need help understanding exactly what your bond guarantees you will and will not do, please contact a bond professional.
Getting Mortgage Broker Bonds with Bad Credit
You can obtain mortgage broker bonds with credit issues. However, not all bond agencies will be able to approve you. Your personal credit is the primary item that is considered when you apply for your bond, as it’s used to get an idea of your probability of causing claims and your ability to pay them.
Things like unpaid collections or tax liens on your credit report are a negative reflection of how you handle your finances, and can result in getting declined for a bond if you work with the wrong bond agency. Unfortunately, even if you get approved for your mortgage broker bond with credit issues, your costs will likely be higher. Use our free bond premium estimate tool to get an instant ball park estimate.
How Mortgage Broker Bonds Benefit You (and your clients)
Your bond protects your clients. If you break the law or any other rules while operating as a mortgage brokerage, your clients can file claims on your bond. However, your bond benefits you as well, as the surety bond alternatives have several disadvantages. Read our guide to lean more about what surety bonds are and how they work.
Frequently Asked Questions
Costs are a percentage of the bond amount that’s required of you, which is based on your personal credit. Use our bond pricing tool to get an instant quote.
No. You will need a bond for each state you are operating in that has a bond requirement. Some states require a bond for each branch location and or loan originator.
Getting licensed in all 50 states can be problematic if you work with the wrong surety agent. Mortgage broker bonds are not insurance for the broker, they are a form of credit. Many mortgage brokers reach their surety credit limitations before being able to get licensed in all 50 states. We are licensed to write mortgage and surety bonds in all 50 states.
Yes. Although it will raise the price for the bond significantly.
Our online application will provide you with an instant quote online.
Professional liability insurance protects the broker in the event of a claim. Mortgage broker bonds provide protection for the public, not the broker. In the event of a claim on the bond, the bonding company will look to the broker for reimbursement. Therefore, mortgage brokers bonds are truly a form of credit to the broker and insurance to the public.
No. Some mistakenly refer to these bonds as "mortgage bonds", but that is a different product. These bonds are a type of surety bond in place to guarantee the broker's license. Mortgage bonds are investment bonds backed by real estate or physical property, such as equipment. The mortgage bond market provides investors protection in the event of a default. Also, the term “mortgage surety bond” is sometimes used, which is an inaccurate term for a mortgage broker or lender bond.