What is A Mortgage Broker Bond?
A mortgage broker bond is a legally binding contract between a mortgage broker, a surety and the broker’s clients that protects the clients from certain actions of the mortgage broker that are not in line with industry standard or are purposefully to the detriment of the client. An example of such activity is the mortgage firm approving the client for a loan that they know is unaffordable for the client. This bond is required by law for the obtainment of brokerage license by businesses.
How Does A Mortgage Broker Bond Work?
Mortgage brokers help people looking to get a mortgage obtain a good deal from a lender. They are a sort of middlemen that connect their clients with firms that give mortgages, and fraudulent activity on their part could leave clients bankrupt. To curb this occurrence, the government mandated that mortgage brokerage firms and business take out a bond that ensures that their actions are in line with the industry standards and that they do not purposefully act for personal gain at the expense of clients.
This bond ensures that mortgage brokerage firms are acting in the best interest of their clients and a claim can be filed when the mortgage broker deviates from the terms of contract. Damages are paid by the Surety if the broker does not have immediate access to funds. The broker is then legally obligated to reimburse the Surety.
Activities that constitute a breach of the bond conditions include:
- Approving clients for a loan amounts that they cannot afford.
- Charging unnecessary or hidden fees.
- Setting interest rates that are not based on the client’s credentials.
- Convincing clients to take unnecessary risk because it generates more profit to your company.
- Encourages clients to use dishonest means to qualify for a mortgage, e.g. lying.