Mortgage Broker Surety Bond

Mortgage Broker Surety Bonds Explained

A mortgage broker surety bond is a license & permit bond that is categorized as a commercial surety bond. A mortgage broker surety bond guarantees that individuals granted a license or permit to operate a business or exercise a privilege will meet the obligations under that license or permit.

 

There are three main parties involved in a surety bond. The first party is the mortgage broker, and is known as the principal and is the party that needs to be "bonded". The second party, called the obligee is the party requiring the bond of the principal to guarantee something. Usually, the obligee is a state department of the government. The third party is the bonding company, also known as the surety or carrier. The surety is the party providing the financial backing to handle any claims that might arise.

 

The indemnity agreement of surety bonds is the legal contact that the surety has created to ensure that both parties are aware of the conditions of such an agreement as well as if that agreement is broken. By signing the indemnity agreement the principal or individuals listed on the agreement are verifying that they will reimburse the surety company in the event of a loss. The agreement prevents a company owner from transferring all of his or her assets to their spouse and when closing down the business.

 

If the Principal (the party who has the bond) violates one of the rules, guidelines, statutes, or laws that they agreed to obey (usually referred to in the application or the bond form) then a claim can be made on the bond. If the Surety pays a claim made on the bond then it is the Principal's responsibility to reimburse the Surety for the loss.

 

Spouse's of mortgage broker surety bond holders must sign the indemnity agreement. Even though the spouse might not be involved with the business operations or ownership the surety requires all spouses to sign to secure the joint personal assets.

 

The price of surety bonds is dependant upon a number of factors including credit scores of applicants, net worth of company and principals, experience in the industry, etc. There are many surety bond companies and consultants and the process for obtaining and processing these bonds can be done online. Once surety bonds are obtained they must be presented to the local state department along with other licensing requirements. Currently, many states accept applications and forms only through the Nationwide Mortgage Licensing System, an online system.

 

A surety bond company usually looks at the weakest member of brokerage company applying for the bond . The basis of the premium ends up being based on the owner with the worst credit. This means that if all owners of the mortgage broker company have great credit and one owner is having credit issues the basis for the premium will be on the owner's reports with the credit problems. Usually, any owner of a company applying for a surety bond that shows 5% interest in ownership must be listed on the agreements for a bond.

 

Mortgage brokers are required by state law to hold surety bonds when applying for a license. The minimum amount of the mortgage broker surety bond varies from state to state. For example, New York brokers are required to have a surety bond ranging between $10,000 to $100,000, while New Jersey mortgage brokers are required to hold $100,000 surety bonds. It's important that mortgage brokers contact their local state department for information about surety bonds.

 

In conclusion, the process of getting a mortgage broker surety bonds includes basic steps of finding bond requirements, applying for bond, getting approved, signing indemnity agreement, paying premium, signing bond and submitting to obligee (the state department.)