Does your state have a recovery fund for mortgage claims, or are your mortgage clients covered by a surety bond? Not sure? Read on to find out.
What is a State Recovery Fund?
A state recovery fund is a fund which assists in compensating victims who have suffered as a result of a mortgage agent or company's breach of responsibility.
Each state determines an amount that every mortgage licensee must contribute to the fund each year. Generally, the state commissioner or the state itself manages the fund. This includes managing the funds, the claims process, and administering the funds if a valid claim is made.
In the event that there is a violation by a mortgage company to a consumer and the mortgage company is unable to make the consumer whole, the recovery fund helps to reimburse the injured party.
Why is a Recovery Fund Necessary?
Because of the SAFE Mortgage Licensing Act, all mortgage loan originators (MLOs) must be licensed and covered under a mortgage surety bond or recovery fund obligation.
Section 1508(d)(6) of the SAFE Mortgage Licensing Act declares that states must set minimum net worth or surety bond requirements or establish a recovery fund paid into by loan originators.
States That Have a Recovery Fund
- Hawaii: Mortgage Loan Recovery Fund
- Washington: Mortgage Recovery Fund
- Texas: Mortgage Broker Recovery Fund
- Arizona: Mortgage Recovery Fund
- Florida: Mortgage Guaranty Trust Fund, Securities Guaranty Fund, and Florida Real Estate Recovery Fund
- Utah: Residential Mortgage Loan Recovery Fund
- Idaho: Mortgage Recovery Fund
- Nevada: Real Estate Education, Research, and Recovery Fund
The Surety & Fidelity Association of America has surety bond requirements for all states, including information on if the state has a mortgage recovery fund.
State Fund vs Mortgage Bond
While a state fund is an attractive option to some of the states that have smaller bond amounts and a low claim frequency, it often means an administrative burden for the state agency.
The recovery fund option doesn’t have a number of the advantages to a mortgage bond such as:
- Ability to outsource claims handling
- A fiscally motivated 3rd party to resolve claims and false payment issues
- A prequalification tool for mortgage company applicants
- Guaranteed balance sheet from the surety company (recovery funds must be funded by licensees to have monies available for a loss situation)
You can learn more about the differences between a state recovery fund and mortgage bond.
Does Your State Require a Mortgage Bond?
If you are in a state that doesn’t have a recovery fund and requires a mortgage bond instead, you’ll need to secure a mortgage bond to get licensed.
To determine if you need a mortgage bond, use our interactive "Mortgage Bond Amount Calculator".
Then, if you need a mortgage bond, get a free quote below.
Surety Solutions can help you get your mortgage bond at the best price. We even show you what you'll pay so you can make the best decision, without any obligation to buy. Get your free quote below.