A California mortgage broker bond is a prerequisite for getting a California mortgage broker license. All finance lenders and finance brokers—including mortgage brokers—are required to be licensed in the State of California with a choice of two main licensing options:
California Department of Financial Protection & Innovation (DFPI): Licenses issued through this agency—formerly known as the California Department of Business Oversight (DBO)—require a mortgage broker bond in the minimum amount of $25,000. Licensing options include:
- California Finance Lenders License (CFL) – a finance broker license that allows the licensee to broker loans to others holding a CFL license.
- Residential Mortgage Lending Act License (CRMLA) – allows the licensee to broker loans to others holding a CRMLA license.
California Department of Real Estate (DRE): This licensing option does not require a surety bond. It allows licensees to work as mortgage brokers and/or real estate brokers for businesses. Mortgage Loan Originator (MLO) endorsements are also available through this agency—required to make loans to residential buyers.
If you are considering a DFPI license, read on to learn everything you need to know about mortgage broker bonds. We break down how they work, how much they cost, and commonly asked questions.
What is a California Mortgage Broker Bond?
A California mortgage broker bond is essentially a pledge that a mortgage broker will conduct business ethically and legally. If the broker fails to do so, the surety bond is used to recover expenses, fines, and fees related to repaying a consumer for losses or damages incurred from misconduct.
Every California mortgage broker bond is a contractual agreement between three parties:
- Principal: The lender or mortgage broker that needs to get the bond.
- Obligee: Entity requiring the principal to get bonded (ex. The California Department of Financial Protection and Innovation).
- Surety: The company that issues the bond and backs it financially (generally a surety company or insurance agency).
In the event that a claim is made against the surety bond and that claim is deemed valid, the surety will initially pay the claimant. However, the principal is then required to reimburse the surety for the full claim amount plus any legal fees.
Types of Mortgage Brokers Bonds in California
Three main types of bonds fall under the mortgage broker bond category. However, sometimes these bond names are used interchangeably. While the name of the bond is significant when you apply to get bonded, the most crucial part is getting the correct information on the bond. This specifically refers to the bond amount, bond term length, and the name of all parties involved (principal, obligee, surety).
California Mortgage Broker Bond
A prerequisite for all mortgage brokers applying for licensing through DFPI. This bond applies to both the California Finance Lenders License (CFLL) and the Residential Mortgage Lending Act License (CRMLA).
California Mortgage Finance Lender Bond
A licensing requirement for California finance lenders. See California Statute 22100.
California Bond of Residential Mortgage Lender and/or Servicer
Required for residential mortgage lender licensees or residential mortgage servicer licensees. This bond is needed to issue residential mortgage loans according to the California Financial Code, section 50205.
Who Needs a Mortgage Broker Bond?
Any finance lender or broker applying for a license with the California Department of Financial Protection and Innovation (DFPI) needs a mortgage broker bond. The bond itself acts as a form of risk management, ensuring the principal (bond holder) acts according to the provisions of the California Finance Lenders Law.
Beyond this bond, the license application process also involves:
Net Worth Requirements: A minimum net worth of $50,000 (residential lenders) or $25,000 (non-residential lenders).
Criminal History Check: Proof of no criminal history must be included with the paperwork.
Business Plan: A finance lender business plan.
Application Approval: Applications must be approved through the Nationwide Mortgage Licensing System (NMLS) for residential lenders or brokers. Or DFPI for non-residential lenders.
How Much Does This Surety Bond Cost?
All surety bond applications undergo an underwriting process considering the applicant’s credit score and past bonding history. However, financial statements and business history may also be requested. For those with good credit, a mortgage broker bond generally costs 1% - 5% of the total bond amount.
Therefore, a $25,000 surety bond’s premium would be $250 - $1,250. See the chart below for more examples of broker bond prices.
Surety Bond Requirements for Mortgage Lenders and Mortgage Brokers
|Dollar Amount of Aggregate Loans Made in Prior Year||Surety Bond Amount||Bond Cost*|
|0 - $1,000,000||$25,000||$250 - $1,250|
|$1,000,001 - $50,000,000||$50,000||$500 - $2,500|
|$51,000,001 - $500,000,000||$100,000||$1,000 - $5,000|
|Over $500,000,001||$200,000||$2,000 - $10,000|
*Bond rates are reflective of an individual with good personal credit. In the case of mortgage broker bonds, this would secure the bond for a year. To keep the bond valid, it must be renewed (and paid for again) the preceding calendar year.
Can I Get a Mortgage Broker Bond with Bad Credit?
Yes, you can often get a mortgage broker bond with bad credit from most bonding companies. However, you can expect your bond quote to be slightly higher. See our guide to Bad Credit Surety Bonds for more information.
If a claim is made against a mortgage surety bond, additional information from the bond holder will be requested. From there, if the claim is found to be valid after an investigation process, the surety that originated the bond will pay the claimant. While they will cover this initial cost, the principal (bond holder) is then required to pay them back in full. The principal is also responsible for paying any legal fees and fines.
See our guide to Surety Bond Claims for more information.
No, a California mortgage surety bond is not the same as insurance. Insurance protects a mortgage brokerage and its assets. In contrast, a surety bond is a liability that protects a person from financial loss due to unlawful activity conducted by a brokerage. Note that there is also a California insurance broker bond available for insurance brokers and agents, which is different from a mortgage surety bond.