Certain businesses are required to secure a surety bond as a precondition for issuing a state business license. Mortgage lenders and brokers are required to get a surety bond before obtaining their mortgage broker license. The bond’s purpose is to insure the consumer against dishonest lending practices or fraud on the part of the lender or broker. Dishonest lending practices include intentionally approving the borrower for a loan fore more than the amount the borrower can afford to repay, encouraging the buyer to indulge in fraudulent practices while making the application, charging exorbitant fees, and establishing an interest rate solely on the basis of the borrower’s credit history.
A mortgage broker bond guarantees the brokers license, which mandates that the mortgage broker will abide by the mortgage broker licensure code. A mortgage broker bond is required by the state in which a mortgage broker operates. Each state has separate laws and provides its own mortgage broker bonds form.
The actual bond amount depends on two factors namely, the average amount of mortgage loan volume serviced in a year and the state in which the mortgage broker does business. The minimum bond amount is generally between $10,000 and $50,000. Mortgage Broker Bonds for the State of Indiana runs for a term of greater than one year where as in Texas, the bonds must run for a term of two years.