You may have seen signs that advertise certain mortgage bankers as being insured and bonded. The nature of this profession makes being well-insured and bonded a top priority. Here are some of the reasons that mortgage banker bonds are important for lenders and borrowers alike.
What Mortgage Bankers Do
Mortgage bankers are in the business of soliciting applications from borrowers, underwriting their loans from a so-called warehouse line of credit, and then quickly selling the loan to a mortgage investor. Once they have sold the mortgage, they can then use the proceeds to pay off the warehouse loan. The more credit the banker acquires, the greater the capacity to fund more loans simultaneously.
Why Mortgage Bankers Need Bonds
Due to the positive effect on their credit ratings, mortgage banker bonds can be advantageous. Increased credit helps lower the interest rates they can offer to borrowers, and subsequently attract more business. Furthermore, investors such as Fannie Mae, Freddie Mac, Ginnie Mae, Wells Fargo, and PNC all have very specific insurance requirements, so being bonded is often a requirement of doing business with them.
Because of the devastating losses than can be mitigated, as well as the new business that can be generated by lower interest rates, mortgage banker bonds are well worth their premiums.