Mortgage Banker Bond

A Mortgage Banker Bond is in a way similar to mortgage broker bonds. It is kind of a conditional license given to a banking/lending institution in exchange for a bond. The mortgage banker bond will have a set of rules and guidelines that the lender has to follow.

If the lending institution were to break any of these guidelines then they risk losing the value of they’re bond as a penalty and their license will become invalid. It is a control on a system that many have previously abused. So the mortgage banker bond acts as a guarantee that the lending institution acts according to state law.

Mortgage Banker Bonds are issued by the state government. Every state will have a different set of guidelines and a different bond amount.
Prior to the lending crisis the United States is facing, mortgage banker bonds were given out loosely. However many state governments have put reforms to ensure stricter guidelines and higher bond penalty rates. This is primarily to discourage irresponsible or abusive behavior by lending institutions. It is also kept into place to reduce the number of smaller institutions which have ended up going belly up during the impending crisis.

Applying for a Mortgage Banker Bond

Before an institution gives out mortgages they must ensure they are licensed by the state to do so. The only way to get a Mortgage Banker License is to take out a Mortgage Banker Bond. This can be done through surety companies that will underwrite you. However most surety companies are now stricter in underwriting new lending institutions that cannot prove financial and business stability and good past history. Application forms are usually available from your state government housing departments.

State Bonds

Rules, regulations, penalties and bond amounts and terms all vary between states. Bonds generally start at around $10,000 and can go all the way up to $100,000 in states like Nebraska.

Recent state legislatures have led to leash tightening in all mortgage control areas including the rules and regulations attached to mortgage banker bonds. This has seen a sudden drop in both applications for mortgage banker bonds and approval from third party surety companies in underwriting mortgage banker bonds.

This leash tightening is mostly due to the mortgage crisis that the United Stated is currently facing.

The crisis is said to have started due to a lack of control over lending institutions that allowed too many subprime home loans to be given out. Most lenders did not worry about the debt because they had been mostly risk-free after selling their mortgage bonds on the Capital Market.

However after a wave of defaults and consequential call-backs a lot of lending and financial institutions were closely probed into to discover irresponsible and aggressive loans given out. This Included unethical behavior of disguising high interest loans with tactics like adjustable rates and so on. This undoubtedly hurt the industry and the public along with many investors being burnt.

Now state governments are issuing new rules and regulations for new mortgage banker bonds in order to ensure this crisis is not repeated.

If you're looking to get a mortgage banker bond, SuretyBonds.com offers surety bonds in all 50 states.