What is a Mortgage Surety Bond? (And, why is it a license requirement?)
Buying a home is often the largest purchase a person makes in their lifetime. Since a large amount of money is involved with purchasing a home, mortgage professionals must complete training to obtain a license in the state they work. As an effort to prevent fraudulent activities in the mortgage industry, most states enforce licensees to secure a Surety Bond.
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The Surety Bond offers comfort to the buyer since the bond deters the mortgage professional from conducting their responsibilities unethically. By enforcing the Surety Bond requirement, your state’s licensing board removes themselves from being financially responsible for complaints filed against your mortgage license.
How is a bond different from insurance?
Unlike traditional insurance, the Surety Bond does not provide coverage for you, the mortgage professional licensee. The bond functions more as a combination of a line-of-credit and insurance. There are three parties associated with the bond.
Principal – As the licensee, you are assigned the principal of the bond.
Obligee – The licensing department requiring you to get a Surety Bond.
Surety – The surety company that issues your bond.
The state licensing department enforces the Surety Bond requirement to prevent predatory lending activities and abuse of the mortgage lending processes to steal cash and equity from homebuyers and/or lenders.
Your clients are protected by your Surety Bond. They can make a claim against your bond if you commit any acts of fraud. If the surety’s investigation on the claim proves the claim is valid, they will payout to the claimant.
What happens if a claim is made on my bond?
Of course, you don’t plan on having a claim made against your bond. Your surety provider doesn’t expect you to receive a claim, either. This is why the cost of the bond is only a small portion of the necessary bond amount. Still, getting a claim is possible.
If a claim is made against your bond, the surety company performs a comprehensive investigation on the claim. A valid claim will result in the surety offering a payout of the full bond amount or less to the claimant. You are responsible, as the principal of the bond, for repaying the surety back in full.
Types of Mortgage License Bonds
Depending on the state you operate your business and the type of license you require, you may need a surety bond.
There is a bond for each type of licensee.
Mortgage Broker Bond
Mortgage Lender Bond
Mortgage Originator Bond
Mortgage Servicer Bond
Each state has different licensing requirements tied to the type of mortgage license you’re working towards. The best way to determine if you’ll need a Surety Bond is to contact your state’s licensing department. Or, you may lookup your state’s licensing requirements using the Nationwide Multistate Licensing System & Registry (NMLS) website. Also, we’ve created an interactive form to determine if you need a bond and if so, what bond amount is necessary.
How much does a Mortgage Surety Bond cost?
Both your credit and bond amount factor into calculating the cost of your Mortgage Surety Bond. As expected, the more risk the surety is taking on, the more premium is tied to the bond. However, applicants with good credit generally only pay 1%-3% of the total bond amount.
Can I qualify for a Surety Bond with bad credit?
Yes, you can receive approval for your Mortgage Surety Bond even with bad credit. Due to our partnerships with leading surety companies, we’re able to place applicants with non-standard credit. Since more risk is involved, non-standard quotes tend to fall in the 5%-15% of the full bond amount, if the applicant is approved.
If your bond requires a credit check, we will perform a soft-pull on your credit. Your credit score is not adversely impacted by a soft-pull.
Get a custom quote for your Mortgage Bond, today!
Where to get the best deal for my bond?
Our team at Surety Solutions, A Gallagher Company makes the process of getting a Mortgage Surety Bond quick and easy. Get multiple quotes from top surety companies to ensure you find the best deal for your bond. We’re licensed to issue bonds in every state.
We are proud of what we have done for the mortgage industry. We were the first licensed surety bond producer that was authorized in the NMLS to issue Electronic Surety Bonds. We care about making the industry a better, more efficient space.
When it comes to Mortgage Bonds, we help businesses of all sizes secure what they need. We are proficient in utilizing our resources and relationships so we can be competitive with any mortgage bond product. We hope you’ll partner with us and allow us to be part of your story.
Looking for another bond type?
View bonds for your state using the map below.