Understanding Mortgage Brokers Bond and its Types in California
Any person who wants to engage in the mortgage brokering business in the U.S. is required by law to post a Mortgage Brokers Bond as a guarantee that they are operating a legitimate business. A mortgage broker enjoying a bonded status can expect good business because a Mortgage Brokers Bond solidifies his or her reputation in the business community.
Let us first get some basic knowledge in the surety bond sector to understand better what Mortgage Brokers Bond is.
What is a Surety Bond?
Surety bonds involve at least three parties under contract. The Obligee is the party who is the recipient of an obligation or the party being protected by the bond by transferring his or her risk to a Surety Company who guarantees the Oblige that the Principal would be able to perform his or her contractual obligations.
In layman’s term, surety bonds provide protection that the Principal fulfills a given task. The three parties involved in surety bonds, the Principal, the Obligee and the Surety Company agree to a legally binding contract. Surety bonds protect consumers and hiring parties against any form of abuse, fraud, deception, sudden bankruptcies, and penalties.
Simply put, a surety bond guarantees that a business is “good for it.”
What is the Purpose of a Mortgage Brokers Bond?
A mortgage broker acts as the Principal in a Mortgage Brokers Bond. As stated above, the Obligee, or the state, requires a broker to post this type of bond to get a business license and engage in the mortgage brokering business. A broker must secure his license under the Nationwide Mortgage Licensing System. Typically, you will need to post separate Mortgage Brokers Bond if you want to operate in several states.
Like all surety bonds, a mortgage brokers bond provides guarantee that the broker will comply with all the rules, regulations, laws, and statutes imposed by the state. The bond also extends financial security and allows the state to file a claim against the bond if the mortgage brokers fail to follow the law or commit any fraudulent act.
With this in mind, a mortgage broker must scrutinize the financial capacity of his or her client and make sure that the client is capable of repaying a mortgage. If the broker approves the mortgage despite knowing the client’s inability to repay, then a claim can be filed against the broker. While the surety company will initially cover the amount of the claim, the brokerage will eventually reimburse the surety, resulting in a financial loss on his or her part.
Types of Mortgage Brokers Bond in California
There are five types of Mortgage Broker Bonds in California: 1) California Mortgage Broker Bond, 2) California Residential Mortgage Lender Bond, 3) California Residential Mortgage Servicer Bond, 4) California Mortgage Finance Broker Bond, and the 5) California Mortgage Finance Lender Bond.
California Mortgage Broker Bond – Under Section 50250 of California’s Financial Code, mortgage brokers in the state must file a California Mortgage Broker Bond as a pre-requisite to be granted a license to open shop. The California Mortgage Broker Bond gives assurance to the Obligee (public) that the mortgage broker is trustworthy and will comply with all the rules, regulations, laws, and statutes of the state and will be held responsible for all business decisions.
California Residential Mortgage Lender Bond – Section 996.320 of the California Financial Code requires those who are engaged in Residential Mortgage Lender or Servicer in the state of California must post a California Residential Mortgage Lender and Servicer Bond amounting to $50,000 before a license to operate is granted.
California Residential Mortgage Servicer Bond – Section 50205 of the California Financial Code demands that underwriters providing California Residential Mortgage Service must obtain a California Residential Mortgage Servicer Bond as before a license is issued by the regulator. The amount of the bond should be $50,000.
California Mortgage Finance Broker Bond – The California Financial Code requires Finance Brokers in the state of California to post a California Mortgage Finance Broker Bond under Section 50205 before the regulator grants its license to operate.
California Mortgage Finance Lender Bond – All Finance Lending Service providers in California are required to obtain a California Mortgage Finance Lender Bond under Section 50205 of the California Financial Code as a condition for license approval.
By possessing the California Mortgage Broker Bond, California Residential Mortgage Lender Bond, California Residential Mortgage Servicer Bond, California Mortgage Finance Broker Bond, and the California Mortgage Finance Lender Bond, you are telling the public (Obligee) that you can be trusted as a Principal and that you stand behind your business decisions.
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If you require a California Mortage Broker Bond, please call us at 800-333-7800. We are happy to answer questions and issue you a free quote.