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What Is a Mortgage Broker Bond?

If you are aspiring to become a successful mortgage broker or a person who is looking for the services of a trustworthy one, it is important in both cases to ask – “What is a mortgage broker bond?”.

A mortgage broker bond is a license that both protects the broker’s reputation and the rights of clients. This document indicates that a professional in question has not been involved in any illegal businesses, and in case something happens, the clients’ rights will be protected, and the broker will be held financially accountable.

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All Licensed Brokers Have Mortgage Broker Bonds

A mortgage broker bond has become the most important document that, first and foremost, indicates the quality of a business, but if some kind of mishap occurs, the client’s rights will be protected by it. The bond includes precise regulations and defines the scope of the broker’s responsibilities. Nowadays, all states require brokers to have this document. The bond involves three parties:

The principalThe principal is the mortgage broker who has acquired the bond. It automatically indicates that the broker’s business is transparent and prepared to take financial responsibility for any potential mistakes.
The obligeeThe obligee is the state and clients. Any client can file a complaint against a broker, and the state will determine whether any violations occurred. If, indeed, a violation occurs, the broker will have to assume all responsibility because of the bond.
The suretyThe surety is the bond’s issuer. In case a broker declines to pay a client, the issuer will take this responsibility. However, the issuer has the right to sue the broker, which most frequently results in the end of their career.

If you are a person who is aspiring to become a professional in this field, we strongly recommend reading all the necessary literature and taking this issue seriously. Mortgage brokers who infringe bond regulations (intentionally or unintentionally) often ruin their careers since renowned companies like Zillow will refuse to work with them.

Can a Broker Work Without a Bond?

The answer is no. As a matter of fact, in order to get the official mortgage broker license, you need to have the bond. Hence, it is basically the first document that all new brokers have to acquire. Both for clients and mortgage companies, it is necessary to first confirm that a certain broker has the bond and license before any business is done.

How Is a Mortgage Broker Bond Obtained?

There are official insurance companies that issue these bonds. First, you should check whether the issuer is legitimate, and it is best to do this with the help of the Department of Insurance of the state you live in.

Bonds differ in the amount of money they can cover if something happens. For new brokers, the maximum amount is often 10,000 dollars, and as the broker’s business develops and starts sealing more lucrative deals with bigger companies like Charles Schwab & Rocket Mortgage partnership or Angel Oak, the bond also rises. However, a potential broker has to meet a few requirements before obtaining a bond:

  • This will depend on the state, but most require an aspiring broker to take a pre-licensing education course and pass a qualifying exam before applying for the actual license and bond.
  • The credit score is the most important factor for obtaining a bond. Based on the credit score, the issuer will calculate the amount which can be covered by it. The broker has to pay around three percent of the total amount to the issuer for maintenance.
  • Finally, the issuer will check the potential broker’s background information and business history. Obtaining a bond is much harder (if not impossible) for people who have a criminal record.

Once obtained, bonds last for a year, and the renewal process consists of showing the credit score and proof of a clean business record. Of course, if the business is not successful and the credit score is worse than before, the available amount can be lowered, or in the worst case, the application will be rejected.

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What Are the Benefits of These Bonds?

All three parties involved have benefits from this single document. As a matter of fact, the whole real estate business benefits immensely:

  • The principal – It might seem at first that brokers don’t have any significant benefits, but it is exactly the bond that attracts potential clients. New brokers have to find their place in the market, and reputation is the most important thing. Often, a broker starts with helping students get mortgages before getting bigger deals. Nonetheless, the bond will attract both smaller and bigger clients.
  • The obligee – Clients’ money is protected by the bond. If an accident or a scam happens, the client will have the right to press charges and get back the money either from the broker themselves or the bond issuer.
  • The surety – If the broker refuses to pay back the money, the issuer has the right to seek justice in court, which will be the most likely scenario. If it comes to this point, it is obvious that the broker had the intention to break the law.

Don’t Hire Brokers Who Don’t Possess the Bond

To conclude – if you are looking for the services of a mortgage broker, and a potential hire refuses to transparently show these important credentials, just move on. The broker bond will protect your rights, but it is best to avoid any potential problems and hire a middleman who has a good reputation.

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