While you may have heard about mortgage broker bonds, if you’re not active in the real estate business, you may not be fully aware how they function. State authorities typically require such bonds from mortgage professionals before they get the legal right to operate, and such is the case in Ohio as well.
Whether you’re a homebuyer now, or planning to purchase a home in the future, it’s a good idea to learn more about surety bonds and how they can protect you. Below are the basics that you should keep in mind as a homebuyer in Ohio.
How mortgage broker bonds work
Mortgage brokers across the U.S. have to undergo a rigorous licensing process to start their activities. In Ohio, mortgage professionals have to get a license from the Division of Financial Institutions at the state Department of Commerce. This is the state authority that oversees their operations and ensures their legal compliance.
One of the licensing requirements that mortgage brokers in Ohio have to meet is to post a surety bond. The bond amount should have a penal sum between $50,000 and $150,000 and is determined on the basis of the broker’s loan origination volume.
How exactly does the bonding process work? A surety provides the bonding to the mortgage broker. This is similar to extending an extra line of credit. The bond is a security mechanism that ensures the mortgage broker will adhere to all applicable rules, thus providing a higher level of security for homebuyers.
Protection for Ohio homebuyers
Ohio mortgage broker bonds aim to protect the customers of mortgage brokers. They also provide a guarantee for the state that licensed mortgage professionals will follow the law. This is the purpose of requiring a surety bond as a part of the licensing process. It should also be kept active during a broker’s licensing period.
What this means for Ohio homebuyers is that using the services of mortgage brokers in the state has an additional layer of security.
By getting bonded, mortgage professionals commit that they will not act illegally while serving their customers. This includes dutifully presenting all mortgage information to potential homebuyers, not offering unsuitable loan products to mortgage applicants, and collecting only agreed fees for their services, among others.
The bond ensures brokers’ general compliance with the Ohio Mortgage Broker Act, the Truth in Lending Act, and any other relevant laws.
Filing a surety bond claim
How exactly are Ohio homebuyers protected through mortgage broker bonds? In case the mortgage professional you are working with has acted unlawfully or unethically, and you have suffered damages as a result of their actions, you can demand a compensation.
You can seek a reimbursement by making a claim against the mortgage broker’s surety bond. If the case is proven, which may entail a court decision, you will be granted a financial compensation. The maximum sum that can be paid is the surety bond amount that the broker has obtained during their licensing, i.e. between $50,000 and $150,000.
As the surety backs the mortgage broker when providing the bond, it will pay the reimbursement soon after the claim is proven. In this way, it guarantees that homebuyers will not have to undergo lengthy legal procedures to get their compensations. The broker is still liable for the costs, but this is settled between them and the surety. The bond’s protection is designed to work in the best interest of homebuyers.
Vic Lance is the founder and president of Lance Surety Bond Associates. He is a surety bond expert who helps mortgage professionals get licensed and bonded. Lance graduated from Villanova University with a degree in business administration and holds an MBA from the University of Michigan’s Ross School of Business.