Mortgage Broker Bond Claims

Typically, are there many claims filed on Mortgage Broker Bonds?

[Admin]

Not to brag, but our agency probably writes more mortgage brokers on a daily basis than any other agency in the country. We still have yet to see one claim on a mortgage broker bond. I would consider them a very low risk bond.

[mrbond]

I don't know the Admin's statistics nor do I know how long they have been writing these bonds, but I can tell you that bond claims on these bonds often don't appear for 2-3 years after the infraction occurs. The actual losses will vary greatly by state, depending on how the state staute is written and how they handle surety claims. Some states have had historically low loss ratios, other are not so good.

[Surety Guy]

The only two states I have heard of there being problems in are New Mexico and Washington. New Mexico seems to have higher rates, in general which I would I have been told it is due to a higher loss ratio. Washington has some strict rate rules for sureties and many underwriters can't be bothered. The local department of one of our largest sureties completely stopped doing business in WA due to their crazy rate filing.

As for mortgage broker bonds in general, I have never seen a claim on one new or old. Mrbond, how often do you see claims on mortgage brokers?

[mrbond]

Surety Guy, I could tell you but I'd have to kill you

[Surety Guy]

Can I assume then that you too have never seen a claim on a mortgage broker bond?

You stated their claims arise usually a couple years into the bonds, which may be true. However I still assert that there are very very few claims on mortgage broker bonds in general, regardless of when the claims actually occur.

I will be sure to have another agent in our office report you to the insurance commission if you kill me!

[mrbond]

Oh, I've seen a few, nothing to get too concerned about. But the majority of these mortgage broker bond requirements have only been in effect for a few years. Over 10 years ago, I don't think there were more than 3 states that required mortgage broker bonds. So ask yourself why all these states decided to better regulate the industry? Also, for the most part mortgage rates have been on the decline during that period. A very lucrative time for the mortgage broker industry. Let's see what happens when mortgage rates rise significantly. Just my personal opinion of course.

[Surety Guy]

I don't think more states requiring a bond proves there are more claims necessarily. I think the states are finally wising up and realizing that their job is to protect the people, and having businesses require a bond for their license is a good way to do it.

I agree that there is a large volume of mortgage broker bonds being applied for nationwide and that it is due to the amount of homeowners refinancing and buying/selling their homes as a direct result of the interest rates. However, I fail to see how this will eventually translate into more claims on mortgage broker bonds. I think once the mortgage market slows we will see less applicants and several brokers going out of business. However, this has no direct correlation with claims. Ask some undewriters you work with how many mortgage broker claims they see annually, I think you'll be surprised.

Just my 2 and 1/2 cents