Mortgage broker surety bonds

Published by admin | Filed under Bonds, Mortgage Broker Bonds

You’ve probably heard of surety bonds for contractors, which play a crucial role in homeowner protection during a remodel or other construction project.  These types of surety bonds are taken out by a contractor as extra assurance to a homeowner that any contract that he or she enters into will be fulfilled.  If for some reason the contractor fails to deliver and defaults on the contract or leaves the job incomplete, the company who issued the surety bond will step in and either reimburse the homeowner or assume the contract. 

However, what you may not know is that mortgage brokers also obtain surety bonds.  Basically, the principle is the same as the surety bonds obtained by contractors—to protect the consumer from wrongful practices exercised by the broker. Specifically, the bond protects and covers consumers against dishonest lending practices including, but not limited to:

-Charging higher fees for unnecessary products or services
-Setting interest rates based on borrowers’ race, origin, or other factor besides credit history
-Knowingly lending more money than a borrower can afford to repay
-Suggesting that a borrower refinance again and again even though there is no financial benefit from doing so
-Pressuring borrowers to accept higher risk loans (balloon loans, interest only loans, loans with high pre-payment penalties)
-Encouraging borrowers to lie about income, expenses, available cash, etc.
-Targeting vulnerable buyers and suggesting cash-out refinances
-Using high pressure sales tactics to suggest home improvements at high interest rates

All mortgage brokers are required to obtain the surety bond when they receive their license, and the process is generally backed by the State Department of Banking. 

Depending on the state in which the mortgage broker practices, the surety bond amount varies widely.  In some states, the amount is as little as $10,000 and is only held for one year.  In other states the minimum is $50,000 and is held for two years.  However, it is usually based to some degree on the mortgage loan volume served by the broker. 

If you’re thinking about getting a mortgage any time soon, it’s imperative to make sure that your potential lender is bonded (it’s important to note here that each broker in a firm should have their own bond as each bond only covers one broker, not the entire firm).  Should something happen during your lending process, it’s important that you, as a consumer, are protected.