The business of mortgages is one that comes with a lot of responsibility. While a mortgage broker, loan originator, servicer, or banker all take part in different aspects of mortgage initiation and maintenance, each of these professionals must be responsible with a client's funds. Whatever your specific mortgage field, you need to choose a mortgage bond that fits, and you need to find one that fits your budget as well.
What is a Mortgage Bond?
When you're looking for a mortgage bond, you're looking for something that protects your clients from fraud, irresponsible conduct, and neglect. A mortgage bond is a surety bond. As the person or organization looking for a bond, you are called the principal. You are responsible for acquiring a bond and showing that you are a responsible mortgage professional. To get a bond, you work with a surety company that will review your background and financial standing. Your client or the obligee can make a financial claim against your company should you fail to meet your financial obligations. This bond gives your client reassurance that you will do your best and that he or she will be compensated if things go awry.
The Cost of a Mortgage Bond Depends on the Principal
Generally speaking, the cost of the surety bond is based on three things: the quality of the applicant, the risk of the bond, and the size of the bond. As the principal, you are the applicant for the surety bond. In part, the bond cost depends on how financially strong you are and what experience you have in the specific risk that mortgage work entails. To get an excellent rate on a bond, you need to show a strong financial and credit standing as well as a long history in the mortgage industry.
Mortgage Bond Costs Depend on the Risk of the Industry
Traditionally, mortgage bonds are a fairly low risk type of bond. However, with the mortgage meltdown of 2008 to 2011, the loss ratios associated with this class of business increased more than 400%. In the current marketplace, losses have stabilized creating a more open marketplace. The current rates for mortgage bonds reflect both the current and historically stable marketplace and a renewed understanding of the potential risk of a mortgage meltdown.
Mortgage Bond Costs Depend on the Size of the Bond
Like all surety bonds, a larger mortgage bond will cost more than a smaller mortgage bond. The mortgage bond that you require may depend on the size of your company, the number of locations, or the volume of work that you complete in a specific year.
How Much Does a Mortgage Bond Cost?
Based on all of these factors, what does a mortgage bond cost? Traditionally a mortgage bond would have a standard rate of $15 per thousand, or 1.5% of the face value of the bond. In the current industry, a strong applicant could secure a line of surety credit for 1% or less. The applicant's financial strength, the nature of the guarantee, and their experience in the industry will determine the exact rate and terms provided for a bond required. With an applicant who has five years or more of experience, a credit score of 700 FICA or stronger and a decent net worth, that applicant could secure a rate of $7.50 per thousand or 0.75%. In this case, a $25,000 surety bond would cost approximately $188 for a 12 month term.