Mortgage Lender Bond
Surety bonds are well known in many industries, from cleaning and janitorial services to homebuilders and contractors. Companies purchase surety bonds to ensure that their customers are protected in the event of default or other contractual problem. If a valid claim is made against the bond, the surety company will either reimburse the consumer or attempt to make good on the contract.
As a new mortgage lender, there are many things to consider, such as what kind of loans you'll specialize in, where your office will be, and how to market yourself and get your name into the industry
However, there's another critical issue that you need to consider as you begin establishing your business and its customer base.
Benefits
Law requires businesses in some industries to secure a surety bond before a state business license can be issued. Mortgage lenders and brokers are required to get a surety bond before obtaining their mortgage broker license, a process that is generally backed by the state department of banking. The bond's purpose is to ensure the consumer is protected in the event of wrongful practices or fraud on the part of the lender or broker.
However, even if a bond isn't required in your industry, getting one anyway is simply a good business decision. Consumers are much more likely to hire a licensed and bonded business because they understand that bonds provide an additional layer of protection.
Protection
Mortgage lender bonds protect customers against dishonest lending practices, including:
- knowingly approving the borrower for a loan fore more than he or she can afford to repay
- encouraging the buyer to use fraud during the application process
- pressuring buyers into certain loan products, including high-risk loans or loans with higher interest rates
- establishing an interest rate on the basis of anything other than the borrower's credit history
- charging unnecessary or additional fees
- deliberately targeting vulnerable or at-risk buyers and suggesting cash-out refinances
Bond amounts
Your bond's actual amount depends on the average amount of mortgage loan volume you service in a year and the state in which you do business. The minimum bond amount is generally between $10,000 and $50,000. Check with your state before you purchase your bond to make sure you're complying with all state laws regarding the bond amount. You should also research other requirements you may need to meet before beginning your lending business.
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