California Mortgage Broker Bonds for Beginners
Are you trying to register as a mortgage broker with the California Department of Business Oversight? Like I mentioned in my article on how to become a mortgage broker in California, one of the most important pre-licensing requirements is obtaining a mortgage broker bond. In this article we’ll go more in-depth on what the bond does and how you can obtain one.
Definition of Mortgage Broker Bonds
Many businesses and professionals need commercial surety bonds before they are granted a license or permit. Mortgage brokers are included in this number, and the kind of bond they need is called a mortgage broker bond.
For years the government has been trying to find ways to exercise tighter control over the mortgage broker industry. Mortgage broker bonds are one part of this larger aim.
Brokers are required to obtain such a bond as an extra layer of security. Firstly, the bond ensures that the mortgage broker will not violate the state laws, which govern the mortgage and real estate industries. Secondly, the bond protects customers against fraudulent practices such as brokers pressuring them into loans they can’t afford or asking them to pay hidden fees.
How Mortgage Broker Bonds Work
Mortgage broker bonds work like all other commercial surety bonds. They represent a contractual agreement between three parties: the principal (who posts the bond), the obligee (who requires the bond), and the surety (who backs the bond).
When it comes to mortgage broker bonds, the roles are fulfilled as follows: the principal is the mortgage broker, the obligee is the Department of Business oversight, while the surety is a surety bonds company. When a surety underwrites a bond they practically vouch for the principal and their ability to keep the agreement. This makes them legally responsible in case of a claim against the broker. They must compensate the affected party.
How to Obtain A Mortgage Broker Bond
Mortgage broker bonds are easily obtained online through the website of a surety bonds agency. To determine whether you are eligible to get bonded, you will be asked to provide certain information about your practice, and most importantly, your personal credit score.
Your credit score is important, because it is taken as an estimate of your likelihood to trigger a claim. Since the surety that underwrites your bond is legally responsible for your actions, they’ll want to make sure they are dealing with somebody who is less likely to receive a claim. The price you pay for the mortgage broker bond is also predominantly determined by your personal credit score. Which takes us to…
Mortgage Broker Bond Pricing
If you have an outstanding credit score and clean credit history, you should have no problem getting your bond. The price, paid in annual premiums, will vary between 1% and 3% of the total bond amount. For California, the full amount of the bond is $25,000. This translates into annual premiums between $250 and $750.
If you have a score lower than 650 and certain credit issues such as civil judgments, tax liens or bankruptcies, you are considered a high-risk applicant. Your percentage rate can go up to 15%. In some rare cases it’s possible to see 20% premiums and small collateral requirements, but if you improve your credit score, your premiums will go lower with each year.
Still, there are two situations in which it’s impossible to obtain a mortgage broker bond: if you have late child support payments and/or an open bankruptcy.
For more questions related to mortgage broker bonds in California or to receive your instant quote, feel free to contact us.