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!
Mortgage Bond
Not James Bond - Performance Bond!
Thank goodness I don't need to be bonded for the Hot Dog Truck! If I needed a performance bond to conduct my business, I'd have to go into another business!
A performance bond is basically a guarantee that work-often times it is a construction project- will be done according to the contract and will be completed on time.
A bond is like an insurance policy that will never be used. Insurance policies expect you to file claims. A performance bond is a guarantee that funds will be made available (usually from the person or company obtaining the bond) should something go wrong. If you ever have to use a surety bond, you'll never be able to get one again! Performance bond rates usually don't change over time either unless the financial circumstances of the entity obtaining the bond change. Underwriting a bond is such a costly pain in the backside, most folks stick with what they have anyway. Since the companies who issue performance bonds lost a ton of dough 8-10 years ago, bond companies have become tighter and prices are higher; there's no more cheap bonds out there!
It sounds complicated, and unless you're in a business that requires bonding it is probably very foreign to the reader. But if you're in a business that requires bonding, its important to work with a company with expertise issuing performance bonds. As with any financial product, you want to work with a company that will educate you about your options and get you the most competitive rates. JW Bond Consultants will do just that for you.
I just hope I never need them!
