Mortgage Surety: Safeguarding the State

2007-03-08 10:33:40

( Financial )



Most states across the country require banks and mortgage companies to secure mortgage surety bonds or mortgage broker bonds. Surety bonds are usually purchased by a petitioner or principal from a surety companies as assurance that they will be perform according to pre-agreed standards.

DIFFERENT FROM INSURANCE

Local governments require mortgage surety from credit companies as a form of control and regulation. Surety bonding is some form of guarantee that mortgage companies will adhere to the guidelines that govern the financial market. In case the mortgage company rescinds on their duties or fails to deliver on their legal obligations, the surety bonding company is bound to pay the client, in this case, the state, the prescribed mortgage surety bond amount.

Mortgage surety is not an insurance plan where you make a claim and they shoulder your obligations in your stead. What surety bonds do is guarantee that the company can pay the amount equivalent to the value of the mortgage surety bond. In case your company cannot pay, then the surety bonding company will be obliged to put up the money as stipulated by the surety bond value that you have purchased.

CONTINUING ACCOUNTABILITY

However, your accountability does not end there. If the surety company suffered losses as a result of the bond, then you have the legal obligation to pay the surety company any losses they may have incurred as the case may be. Such arrangement is a way to ensure that your company will abide by state rules and regulations and protects the citizens from unlawful and unfair business practices.

Mortgage surety is by no means cheap because the state usually prescribes the bond value. That is why the local government requires it from banks and other companies engaged in providing mortgage services in the first place. Mortgage surety is considered earnest money, and is seen as proof that the creditor has the enough financial capabilities to meet the needs of the community where they are engaging their business.


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