How to go after a Mortgage Broker Bonds?

What is a Mortgage Broker Bond

A mortgage broker bond is required in order for mortgage brokers to get licenses. They are applied with the state government and act as a guarantee that mortgage brokers act responsibly and within guidelines of the bond or risk paying a penalty, usually in the amount of the bond.

The guidelines ensure that mortgage broker bonds act in the best interest of their clients and not to the lending institutions that they direct clients too. It also is necessary to reduce the chance of fraud or deception.

How to go after a Mortgage Broker Bond

Most mortgage brokers will not have enough money to cover the bond amount as it can reach up to USD$50,000 in some states. This is usually why they require the services of a surety company that will be able to credit the required amount on their behalf. This service will come with a fee of course and require some form of screening and proof of history. The screening process however is not as tough as other commercial bonds as mortgage broker and mortgage banker bonds are considered relatively low risk.

Bonding Companies

Mortgage brokers can apply with many bonding or surety companies. Most bonding companies are highly pursuant of mortgage broker and mortgage banker bonds as it is a relatively low-risk market compared to other commercial bonds. These bonds are underwritten more freely than other commercial bonds and up until recently it used to be very easy for mortgage brokers to successfully apply for.

However after the recent mortgage lending crisis a lot of mortgage bankers and brokers were put out of business. This also resulted in a lot of inquiries into practices and a lot of surety companies lost the bond values due to the breaches in contract.

Some surety companies still issue high rates for these bonds by classifying them as regular commercial bonds. However there are also agents out there whose rates reflect the low risk nature of these bonds.

Industry Shakeout

Currently due to the industry mortgage crisis there are a number of federal and state acts that are being enacted to increase the transparency of mortgage broker dealings. These new acts are being written into mortgage broker bond agreements and include items like requiring mortgage brokers to disclose fee and take a financial responsibility that best represents their client’s well being and interest.

These responsibilities are put on brokers to prevent them from acting against the clients interest as research showed that loans issued by mortgage brokers were relatively higher then those mortgages done directly with the bank. This is said to happen because mortgage brokers were getting kickbacks from bankers and lending institutions in exchange for pointing borrowers to higher mortgages.

Mortgage Broker Bond Market

Applications for mortgage broker bonds are also dropping as market demand is dropping. In the past two years the number of clients using a mortgage broker compared has dropped by over twenty percent. This is directly attributed to the unfair practices in the mortgage broker industry. Customers nowadays prefer to deal directly with the lending institution due to a lack of trust of the middle-man.

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