We're shifting to the mortgage industry today, a topic I've covered here and there over the last 2 years. After having some neighbors of mine go through problems with their mortgage provider, I reached out to Danielle Rodabaugh, a journalist / surety expert who covers the industry. My question to her: "How does your industry deal with mortgage brokers and companies that act illegally? How does the surety protect the consumer?" Here's what she laid out for me, posted here in full. Thanks Danielle!
How to make a claim on mortgage professional's surety bondCountless instances of unethical lending practices in the past decade have motivated government agencies to strengthen mortgage industry regulations across the country. A crucial aspect of the crackdown has been stricter surety bond requirements for mortgage professionals. If a bonded mortgage originator, broker or lender performs dishonestly when helping clients with their mortgages, injured parties might qualify for reparation paid out from professionals surety bond funds. Those who are adversely affected by a violation of the professional's performance can make a claim against the bond. This includes consumers, third-party providers and state authorities in charge of mortgage industry licensing. When it comes to the mortgage industry, the surety claims process varies greatly depending on
- the obligations outlined in the bond
- the jurisdiction in which the bond is active
- the parties bound to the contract's terms
1. Verify that the mortgage professional actually violated the bond's terms.If you believe a licensed mortgage professional you've been working with has violated industry regulations, you might be able to gain reparation. For a valid claim to be made against a bond, however, the mortgage professional must have violated its terms. Some problematic practices that could result in a claim against a mortgage professional's bond include:
- intentionally targeting vulnerable or at-risk borrowers
- pressuring clients to buy certain loan products such as high-risk loans or loans with higher interest rates
- basing clients' interest rates on anything other than credit history
- approving clients for loans they cannot afford to repay
- charging clients unnecessary or additional fees
- encouraging clients to use fraud when applying for a mortgage
2. Get in touch with your attorney.A number of legal issues could arise during your attempt to make a claim on a bond. The best way to handle potential problems is to get in touch with your lawyer right away and explain the situation. Not to mention the fact that mitigation is typically handled better with the help of a lawyer. You should always discuss your claim with an attorney before taking legal action because, unfortunately, the amount you'll be able to collect might not be worth the time, money and effort that will be required to make a successful claim.
3. Contact the mortgage professional's surety.Effective communication is crucial when trying to make a claim against a bond. To find out who the surety is, contact whatever state agency regulates mortgage professionals. The department can provide you with the name of the licensed mortgage professional's surety bond provider. Then contact the surety underwriter and follow its required procedures to make your claim. Oftentimes surety underwriters have personnel that deal exclusively with the claims process. Bond claims against mortgage surety bonds must typically be filed within one year of the date of the act that causes the claim. The duration of the surety bond claims process varies among underwriters. The surety underwriter will have to verify the claim is valid before paying reparation to injured parties. Sometimes mortgage bond language requires a court ruling against the principal for a claim to be considered valid. Whether or not you have to take legal action against the mortgage professional to gain reparation depends on the bond's contractual language. Too many people have learned the hard way that the housing market and mortgage industry can be extremely risky to get involved with. Armed with an understanding of surety bonds, however, current and future homeowners can protect future investments from fraudulent mortgage professionals.
. . . A little more about Danielle: Danielle Rodabaugh is the chief editor for SuretyBonds.com, a nationwide surety bond producer. As a part of the company's educational outreach program, Danielle writes about mortgage industry developments since they're often intertwined with the surety market.