Mortgage Bond

You see the term "licensed and bonded" on company signs everywhere. Not many people know what "bonded" means, but they feel comforted by the phrase. It conveys a sense of protection and stability.

When I was in the mortgage business, we had to fill out a form for our surety bond company. A mortgage broker surety bond basically guarantees that if the broker screws up and violates the law, the company is protected from fines and penalties. For instance, if a broker failed to give their borrower the proper disclosure documents and the borrower complained to the appropriate state agency, the agency would give the broker or the brokerage house a fine. A mortgage surety bond would pay for the fine.

There are, unfortunately, some unscrupulous and dishonest mortgage brokers. I worked with a guy who was arrested for fraud. He was lying to customers about the rates they'd be paying and doctoring their paperwork after it was signed. He spent time in jail and paid a hefty fine. Another guy I worked with was fired because he was running a scam where his friend would verify employment for borrowers so they could qualify for "low doc" loans. Several of his borrowers had their loans called by the lenders and it was a big mess. In both cases, the brokerage house was protected by its surety bond.

There are also large national lenders (like Ameriquest) that have been accused of fraud and deceptive lending practices. The company is facing a class action lawsuit. A surety bond won't help them as bonds don't cover the scope of actions alleged to have been committed.

Overall, surety bonds provide protection but they may not protect against greed and stupidity!