Michigan Mortgage Servicer Bond
What is a first mortgage broker, lender, and servicer bond?
The Michigan Department of Insurance and Financial Services requires first mortgage brokers, lenders, and servicers to obtain and show proof of a surety bond in order to receive their business license.
The required bond amounts vary depending upon the level of licensure you need. There are two different licenses available for mortgage professionals in Michigan: one for mortgage brokers and lenders, and another for brokers, lenders, and servicers.
In other words, if you are only applying for or renewing your mortgage broker license, you will need a different bond than if you are applying for a servicer license. NNA Surety Bonds offers both types of surety bonds.
How much does a first mortgage broker/lender/servicer bond cost?
Michigan offers two levels of licensure:
- 1st Mortgage Broker License
- 1st Mortgage Broker/Lender/Servicer License
The required bond amount is different for each license. For a broker/lender, Michigan requires a $25,000 surety bond. Meanwhile, if you are applying for a broker/lender/servicer license, a $125,000 bond is required.
In either case, you will only have to pay a small percentage of the bond's full coverage amount to get your policy. This fee is known as the bond premium.
Your premium will vary depending on the financials of your business and your personal credit rating, with annual rates ranging from 1% to 15%. You can find further pricing details in the chart below.
Cost of MI Mortgage Broker and Servicer Surety Bonds
| Bond Type | Bond Amount | Cost* (Annual Premium) |
|---|---|---|
| Michigan Broker/Lender Bond | $25,000 | $188 |
| Michigan Broker/Lender/Servicer Bond | $125,000 | $938 |
Why do I need this surety bond?
The state of Michigan requires mortgage brokers, lenders, and servicers to post a surety bond. If you do not, then you cannot be legally licensed in the state.
Mortgage regulations are complex and can often be confusing, especially for consumers. A bond acts as a method of promoting legal and ethical practices by mortgage lenders when dealing with the public.
If a mortgage loan broker or servicer breaks a law, violates a regulation, or otherwise acts in an unethical way, the affected consumer can make a claim against the bond. In the event that a claim is upheld in court, the surety pays for the consumer's losses. Then, you (the bond principal) must pay the surety company back.
What is the difference between a first mortgage broker and a mortgage servicer?
The MI Department of Insurance and Financial Services makes a distinction between a first mortgage broker/lender and a servicer.
A broker/lender is defined as an individual or company who:
- "Directly or indirectly serves or offers to serve as an agent for a person in an attempt to obtain a first lien mortgage loan."
- Or "directly or indirectly serves or offers to serve as an agent for a person who makes or offers to make first lien mortgage loans."
In other words, if you or your company either act as a first lien mortgage loan agent or act on behalf of someone who is, you are considered a broker/lender.
Meanwhile, the state defines a mortgage servicer as an individual or company that services or offers to service mortgage loans. In this case, "service" is understood as collection or remittance on behalf of:
- A lender
- Noteowner
- Noteholder
- Or Mortgage Servicer
In essence, if you or your company plan to make mortgage collections on behalf of another party or yourself, you are a servicer.
So, if you plan to act solely as a mortgage broker or lender, then you are only required to obtain a broker’s license. If you plan to act as a broker and servicer or just simply as a servicer, then you will need a broker, lender, and servicer license.