Comparing Mortgage Banker and Mortgage Broker Bonds

At first glance, some people may assume that mortgage bonds (mortgage banker bonds, and mortgage broker bonds) are all the same. While there are some similarities between the two types of commercial bonds mentioned above, there are also some clear differences which this article will outline.

Mortgage Banker vs. Mortgage Broker:  Most surety bond companies classify mortgage banker and mortgage broker bonds in a similar fashion, but there are some operational elements to each that differentiate the two.  Mortgage brokers serve as a “middleman” by bringing principals together with banks that end up loaning qualified principals funds.  Mortgage bankers (also referred to as mortgage lenders) are the entities that actually lend money to the principals, and they act as both the banker and broker for the loan.  Understanding the difference between a mortgage broker and a mortgage banker (or lender) is the first step toward understanding similarities and differences between mortgage broker and banker bonds.

Bond Amounts:  Perhaps the most obvious difference between the two types of bonds lies in the amounts in which they are commonly written for.  Mortgage banker bonds are typically much larger, or written for much more money, than mortgage broker bonds are, and can be two to three times the size of mortgage broker bonds.  Therefore, qualifying for mortgage banker bonds can be much more challenging for a prospective principal.

Bond Forms:  Every state will have a separate bond form for mortgage banker and broker bonds, which will spell out exactly that the specific bond guarantees.  The bond forms may differ depending on the language of each state.  While any given state’s bond forms for each type may appear similar, it is important to carefully read the bond form, or work with a knowledgeable bond agent, to ensure you understand exactly what is being guaranteed.

Similar Risk for Mortgage Bankers and Brokers:  Contrary to popular belief mortgage banker and mortgage broker bonds both have very similar risk factors.  Seeing that the bond amounts for mortgage banker bonds are on average significantly higher than those of mortgage broker bonds, most people would think that mortgage bankers face more risk, however that assumption is not necessarily accurate.  While the nature of a mortgage banker’s job makes the risk they face obvious to most, the many challenges mortgage brokers face seem to level the playing field when it comes to risk.  Recent studies have further proven that the claims ratios for both types of bonds are comparable.