Booming Real Estate Market Spells Opportunity for Insurance Agents
April 7, 2021
The COVID-19 pandemic and resulting shutdowns caused the US economy to shrink by 3.5% in 2020. Many industries were hit hard, and are still attempting to bounce back from last year’s losses. That said, one industry in particular was not only able to survive 2020’s tumultuous market conditions, but soar to record levels. The real estate industry has seen tremendous gains in the past 10 months, and as a result, many people are seeking to enter the industry as licensed mortgage loan originators, providing insurance agents the opportunity to service their surety bond needs. In this week’s blog post, we break down why the real estate industry is booming and provide insurance agents with everything they need to know about mortgage loan originator bonds.
Why is the Real Estate Industry Booming?
There are multiple different factors that have caused the real estate industry to soar. For starters, the COVID-19 pandemic has confined many people to their homes, with numerous people seeking to avoid spending prolonged amounts of time in public spaces. Additionally, there is an increasing demand for homes that have dedicated spaces to conduct work and attend school. Since people have had to conduct most of their activities at home, it makes sense they would want to upgrade their properties.
Homeowners have a couple options when it comes to property upgrades. Either renovate or buy a new home. Renovations require an initial investment; however, allow for a strong return given the current market conditions. Builders have experienced a major lumber shortage as the pandemic continues to upend supply chains globally. As a result, new homes and renovations are now more expensive. That said, these price increases have done little to negate demand, with buyers willing to spend more on residential property with homes often being sold over asking price.
Lastly, mortgage rates fell to record lows in 2020, giving buyers the opportunity to purchase new properties at low interest rates. Mix all of these factors together and you’ve got the perfect storm for a booming real estate market.
What Does This Mean for Insurance Agents?
Many people are seeking to become licensed real estate professionals to capitalize on the industry’s gains. Mortgage loan originators, commonly referred as mortgage brokers, services, or lenders, are required to purchase a surety bond as a prerequisite to licensure. The demand for mortgage loan originator surety bonds provides insurance agents the opportunity to grow their book of business and service more mortgage loan originator customers.
What is a Mortgage Loan Originator Bond?
Mortgage loan originator bonds, sometimes also referred to as mortgage broker or lender bonds are government required surety bonds that mortgage loan originators must purchase to obtain a license. Mortgage loan originator bonds protect the public from financial harm resulting from violations of licensing law committed by the loan originator.
Most states require mortgage loan originators to purchase a surety bond as a prerequisite for licensure and the bond must remain active as long as the loan originator is in business.
Unlike most insurance products, surety bonds protect a third party (customers of the loan originator) for acts that are violations of the law. When the surety company suffers a loss due to the loan originator’s actions, the loan originator must repay to the surety company any losses and sometimes court costs and other fees.
Who is Considered a “Mortgage Loan Originator?”
Most states require individuals who take residential mortgage loan applications or offer/negotiate the terms of a residential mortgage loan to obtain a license and surety bond to operate in the state. State definitions vary on who is considered a “mortgage loan originator”, but the general rule of thumb is that individuals issue or assist customers in obtaining a mortgage loan must obtain a license.
Who Regulates Mortgage Loan Originators?
State government agencies regulate mortgage loan originators based on license law written by each state’s legislature. Governments enforce the law by instituting licensing requirements like exams, continuing education courses and surety bonds. The surety bond ensures the public will be compensated if the mortgage loan originator fails to comply with the law.
Is a Credit Check Required to Purchase a Mortgage Loan Originator Bond?
Yes, surety underwriters will review your customer’s personal credit to determine their eligibility and rate for mortgage loan originator bonds. Most carriers use a “soft check”, so the credit review will not affect the applicant’s credit. Underwriters will consider other aspects of the loan originator’s application, but credit scores and their underlying data remain the primary underwriting tool for mortgage loan originator bonds.
How Much Does a Mortgage Loan Originator Bond Cost?
Mortgage loan originator surety bonds generally cost between 0.75% to 5% of the bond amount per year. Why such a large spread? Insurance companies determine the rate based on a number of factors including your customer’s personal credit and experience.
Mortgage loan originators with the best credit and business experience can expect to pay the lowest rates, while mortgage loan originators with poor credit will pay higher rates. The chart below offers a quick reference for the approximate bond cost on a $25,000 Mortgage Loan Originator bond.
$25,000 Mortgage Loan Originator Bond Cost Sample
|Credit Score||Bond Cost|
|650 – 699||$250|
|625 – 649||$313|
|600 – 624||$470|
|550 – 599||$1,000|
|450 – 549||$1,250|
*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.
Do Surety Companies Offer Financing on Mortgage Loan Originator Bonds?
Most mortgage loan originator bond premiums can be financed. To be eligible, the bond must have a cancellation provision in the bond form. Premium finance companies usually charge a finance fee and interest rate to provide the financing. BondExchange offers in-house payment plans for bond premiums over $500. Our payment plans are interest free and can be set up instantly online with a customer credit card and a few clicks. We offer this option automatically for bonds that meet the eligibility requirements.
What Information is Collected for a Mortgage Loan Originator Bond Application?
Surety company underwriters will collect and review the following information to determine eligibility and rate for a mortgage loan originator bond:
- Applicant’s legal name
- Company address and phone number
- Applicant’s years in business
- Contact phone number
- Company owner(s) name, address, and social security number
For larger bond amounts (usually over $50,000), some surety companies will review businesses financial statements generally including a balance sheet and profit & loss statement. Underwriters will be looking for businesses with sufficient working capital (current assets – current liabilities), revenue and a history of profitability.
How Does a Mortgage Loan Originator File Their Bond?
Surety bond companies will provide the mortgage loan originator with a completed surety bond to be filed with the relevant licensing authority. Most Mortgage Loan Originator Bonds are filed electronically through the Nationwide Multistate Licensing System (NMLS). Insurance agents can check whether their states filed Mortgage Loan Originator Bonds electronically here.
Surety companies should include the following information on most bond forms:
- Legal name and address of entity/individual(s) buying the bond
- Surety company’s name, address and phone number
- Bond amount
- Signatures of the surety representative
- Date the bond is effective and issued
- Corporate seal of the surety company
- Power of Attorney
What Can Mortgage Loan Originators Do to Avoid Claims Against Their Bond?
To avoid claims on a Mortgage Loan Originator Bond, mortgage loan originators must adhere to all licensing regulations in their state. Best practices for avoiding claims include the following:
- Do not engage, or allow representatives of the business to engage, in any acts of fraud
- Pay all taxes and fees on time and in full
How Can an Insurance Agent Obtain a Mortgage Loan Originator Surety Bond?
BondExchange makes obtaining a Mortgage Loan Originator Bond easy. Simply login to your account, select the state the bond is needed in and use our keyword search to find the “mortgage” bond in our database. Don’t have a login? Enroll now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone (800) 438-1162, email or chat from 7:30 AM to 7:00 PM EST to assist you.
For more than 40 years, BondExchange has provided agents with leading technology, access to markets, and fast and friendly service enabling agents to better serve their clients.
What Other Insurance Products Can Agents Offer Mortgage Loan Originators?
Some states require mortgage loan originators to purchase errors and omission insurance Bonds are our only business at BondExchange, so we do not issue any other forms of insurance, but our agents often utilize brokers on these lines. A list of brokers in this space can be found here.
How Can Insurance Agents Prospect for Mortgage Loan Originator Customers?
Most mortgage loan originator license applicants are processed through the NMLS, which conveniently provides a public database to search for active mortgage loan originators. The database can be accessed here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.
What States Require Mortgage Loan Originator Bonds?
The following states require mortgage loan originators to purchase and maintain a surety bond: