Making the real estate purchase of a lifetime is a big decision. For many individuals and businesses, this means looking for a good mortgage loan deal.
Mortgage brokers are an indispensable partner in this process. Today, they are the most popular sellers of mortgage products because their role is to be the intermediaries between buyers and lenders.
Naturally, buyers need the most secure help they can get, as well as access to the top lending programs. Working with a licensed brokerage that has met the surety bond for mortgage brokers requirement is the key to that.
But what exactly does licensed and bonded entail for mortgage brokers? Let’s get into the nitty-gritty details of mortgage broker licensing, so buyers can be sure that they’re using the services of a legally-compliant and knowledgeable broker.
Licensed means ‘safe to do business with’
The mortgage broker profession is extensively regulated. Becoming a mortgage broker entails certain educational credentials, passing the SAFE Mortgage Loan Originator Test and getting a license in the state of operation.
All licenses are kept in the Nationwide Multistate Licensing System and Registry (NMLS), though it is not the authority issuing the licenses. Each individual state has different requirements for granting a mortgage broker license — but rest assured, the rules are quite stringent across the U.S.
Besides passing the above-mentioned test, they include providing a wide range of documents about the entity that will be brokering mortgages, as well as further security in the form of a mortgage broker bond.
All these requirements guarantee the legal compliance of a broker. This means that they meet the necessary level of mortgage training and business know-how, so you can trust their high professional standards.
All about being bonded
Most states require future brokers to obtain a specific type of surety bond called a mortgage broker bond.
What is the bond all about? Well, it’s an extra layer of protection for consumers. The bond guarantees that the mortgage broker will stick to all applicable rules in the field. In a sense, it functions like an extra line of credit for the bonded broker.
To get bonded, brokers need to pay a percentage of the bond amount, which is the bond premium. The surety provider provides the bonding and backs the broker (the principal) in front of the authority that asks for the bond (the obligee).
But before the surety can underwrite the bond, a thorough examination of the broker’s personal and business financials, as well as business management, is conducted. This assessment is important because it guarantees that brokers with fraudulent practices won’t get bonded, and thus would not be able to get licensed.
That’s why being bonded signifies that a broker is safe and trustworthy. Even if a problem does arise, property buyers can rely on the security that the mortgage broker bond provides.
Claims on mortgage broker bonds
What happens if a mortgage broker breaks the law or the conditions set in the mortgage broker bond? The obligee or any affected party can make a claim on the surety bond. The surety provider is then obliged to conduct an investigation and check the validity of the claim.
If the claim is proven, the mortgage broker might end up reimbursing the claimants up to the penal sum of the surety bond. The costs are covered by the surety at first, but then the broker needs to repay it in full.
For example, if a mortgage broker knowingly approves a non-compliant customer for a loan that he or she cannot repay, the broker is breaking the rules and a claim can be filed against him or her.
Working with a licensed and bonded broker means that the buyer will get the right loan product for his or her particular circumstances, so that the buyer doesn’t end up in a financially untenable situation.
Being licensed, bonded and insured is a signal to the customer that a mortgage broker is law-abiding and honest. Licensing is a strong sign that mortgage brokers are trustworthy and capable of doing a good job with finding the right mortgage loan.
What is your experience working with licensed and bonded mortgage brokers? Please share your thoughts in the comments section below.