For a mortgage broker to become licensed, he or she must first obtain a mortgage broker bond to ensure they comply with local and federal ordinances and laws.

Although bonds serve a multitude of purposes, here is everything you need to know in regards to mortgage broker bonds and how they play a major role in the real estate market today.

What are Mortgage Broker Bonds?

 Depending on the state in which a mortgage broker operates, the requirements to become licensed may vary; therefore a mortgage broker may be required to obtain mortgage broker bonds in each state where they may practice real estate.

For local state ordinances to ensure that licensed mortgage brokers adhere to regulations, they may require a mortgage broker bond to ensure any active agent is financially responsible in the event they breach their bonding contracts.

There are many reasons a mortgage broker might engage in poor business practices that could make them liable. For example:

  • Charging hidden fees that were not part of the original contract.
  • Deliberately encouraging a client to falsify information on the application.
  • Making loans based on Race, Gender, or other factors that should not be considered
  • High-pressure sales techniques that force clients into loans that are not proper.
  • Any other poor business practice deemed to be within the normal realm of responsibility of the Mortgage Broker.

In the event that the mortgage broker engages in poor business practices, they could be at fault.   If the mortgage broker is found at fault, they could be personally responsible to pay penalties associated with the malfeasance.

Here is a closer look at how Mortgage Broker Bonds operate (Case Study:)

Johnny is a licensed and bonded mortgage broker in the state of California.

Johnny is aware that his latest client, who has purchased a sprawling home in the Hollywood Hills area of Los Angeles, may not be able to keep up with the mortgage payments on the pricy home.

Despite his prior knowledge of his client’s lack of funds to pay for the mortgage, Johnny still approved his client. Because Johnny deliberately approved a loan that his client could not afford, Johnny could be found liable.

In this case, Johnny may be liable to pay fines in accordance with his mortgage broker bond. If Johnny refused (or was unwilling) to pay the fines, the Surety Company that provided the bond would make the initial payment. Later, the Surety Company would attempt to recover from Johnny.

Like all Surety bonds, the pricing of a mortgage broker bond will vary.

Everything from credit score, experience in the field, and current finances will all have a major impact on the pricing of such bonds.

At Surety Bond Authority, we pride ourselves on highly competitive bond pricing and stellar customer service.

If you have any questions or need a specific bond such as a mortgage bond, contact us at 800-333-7800.

Greg Rynerson, CPCU

Greg Rynerson, CPCU

Backed by 30 years of experience, I spent my career in the surety bond and insurance industries. Throughout the course of my professional life, I've been proud to execute bonds at the state and federal level for various clients.

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