Mortgage Broker Bond/Mortgage Banker bond

A mortgage broker bond is a legally binding contract that ensures mortgage brokers follow the law or risk penalties. The bond is part of the licensing process and mortgage brokers will need one before offering their services. Required minimum amounts on the bond will vary by state and the cost can range from $75 to $1,000 and up.

In this expert mortgage broker bond guide, you will learn:

• Definition & Example
• How It Works
• Costs Requirements
• Where to Find & How to Apply
• Frequently Asked Questions

Mortgage Broker Bond Definition and Example

A mortgage broker surety bond is a type of license and permit bond specific to mortgage brokers and is part of the licensing process. Your governing agency requires this bond because it protects other parties from bad broker practices that could lead to financial loss.

Unlike insurance which involves two parties (you and the insurance company), a surety bond is a three-party contract:

• Principal: The mortgage broker that needs the bond (you)
• Obligee: The party requiring the bond (the state/local governing agency)
• Surety: The company that issues the bond, assuring the governing agency that you, the mortgage broker, will comply with all regulations

What is an example of a mortgage broker bond?

Let’s say a mortgage broker approves a homebuyer for a mortgage loan they definitely cannot repay. If a claim is filed against the bond and proved true, then the claimant can be reimbursed for any financial losses they suffered.

How Does a Mortgage Broker Work?

Mortgage broker bonds are designed to protect other parties affected by your dealings (it’s not intended to defend you). The involved parties are protected against bad broker practices, such as when you commit fraud and or don’t fulfill your contract terms.

Now, let’s move on to the mortgage broker bond itself. These characteristics will be key when purchasing your bond:

• Bonding capacity: The bond capacity is the highest amount a wronged party can claim when filing a claim against your bond. It’s also called the bond amount and the minimum requirements will vary by state.
• Bond premium: How much you will pay out of pocket for your bond — usually .75%- 1% to 4% of the required bond capacity.
• Bond term: How long your bond will last. Terms will commonly last one year but may extend up to two years depending on your state.

What happens when a claim is filed against the mortgage broker bond?

Let’s say you’re working with a homeowner and they accuse you of violating a regulation. The homeowner files a claim against your mortgage broker bond, which triggers an internal investigation with the surety. The surety will collect information, including correspondence and signed documents.

If the claim is proved false, you will not be financially liable. But if the claim is true, the surety will reimburse the homeowner for any claimed losses and damages. 

You will need to repay the surety for the full amount they paid out to the claimant. For example, if the claim settled for $1,000, then you now owe the surety $1,000.

How Much Does a Mortgage Broker Bond Cost?

A surety bond for a mortgage broker typically costs  1% to 4% of the bond amount. The premium is a one-time fee, paid upfront. The required bond amount will vary by state, ranging from $5,000 to $500,000. That means the bond premium can cost you anywhere from $75 to $20,0000. 

Some states also set different requirements based on your loan volume and total amount processed. In California, a bond amount of $25,000 is required for aggregate loans up to $1,000,000. The required amount increases to $50,000 for aggregate loans from $1,000,001 to $50,000,000. 

Below is a table of estimated costs for different required minimum amounts based on a 0.75% to 4% premium.

Generally, mortgage brokers with good credit and experience will qualify for lower premiums. Terms typically last one or two years depending on the state and you will need to pay another premium to renew your bond.

NOTE: Some states may require additional coverage if your mortgage broker business has multiple locations. For example, Rhode Island requires a mortgage surety bond for $20,000 plus $5,000 for each location.

Mortgage Broker Bond Requirements

There is no general mortgage brokers surety bond that will be accepted nationwide. The required minimum surety bond for mortgage broker companies will vary by state.

To make your life easier, we’ve compiled the bond amount requirements by state below:

How Do I Get a Mortgage Broker Bond?

After confirming the minimum amount required in your state, a mortgage broker license applicant will need to obtain a mortgage broker bond. These bonds are typically available through insurance companies. You may want to shop around with different sureties to find the best quote.

After purchasing your bond, you will sign it and send it to the governing agency, along with any other required documents. You should also make a copy for your own records.

Applying for a Mortgage Broker Bond

Obtaining a mortgage broker bond is easy when applying with Worldwide Insurance, Inc. Just fill out our initial application form and get an instant quote in minutes. With rates starting as low as 1%, we issue all types of surety bonds in all 50 states. No credit check required and no obligation.

Mortgage Broker Bond FAQs

What is a mortgage broker bond?

A mortgage broker bond is a type of surety bond that ensures that you, the mortgage broker, comply with all rules and regulations or risk financial liability for any claims filed against you. Bonding requirements will vary by state.

Do mortgage brokers need to be bonded?

Yes, mortgage broker bonds are part of the licensing process for mortgage brokers. You’ll need to be bonded for a minimum amount required by your state.

Why do you need a mortgage broker bond?

Mortgage broker bonds are required to protect other parties involved in your dealings. If a party suffers any financial loss due to bad broker practices on your part, they can file a claim against the bond to be reimbursed.

How much is a mortgage surety bond?

Premiums on a mortgage broker bond can range from $50 to $20,000. The cost is typically 1% to 4% of the bond amount, which can range from $5,000 to $500,000 depending on your state. Mortgage brokers with good credit and experience typically receive lower premiums.

How long does a mortgage broker bond last?

Mortgage broker bonds typically carry terms of one to two years, depending on your state.

Can I get a bond with bad credit?

Yes, Worldwide Insurance, Inc. works with thousands of business owners — even those with low credit — to help them meet their bonding requirements. If you need a mortgage broker surety bond but have bad credit, we’ll still work with you.

Are mortgage broker surety bonds the same as mortgage bonds?

Mortgage broker bonds are NOT the same as mortgage bonds. Mortgage broker bonds are a type of surety bond necessary for doing business. Mortgage bonds refer to investment vehicles in the mortgage bond market, where individuals invest in real estate.

What type of mortgage broker bond do I need?

Visit our list of bonds by state to get a closer idea of your bonding requirements. To learn more about surety bonds in general, check out our free surety bond guide.