Alabama Mortgage Broker Bond: A Comprehensive Guide
This guide provides information for insurance agents to help brokers obtain Alabama Mortgage Broker Bonds
At a Glance:
- Lowest Cost: $125 per year or $13 per month based on the broker’s credit
- Bond Amount: Determined by the dollar volume of loans closed in the previous calendar year:
Table 1.1
| Loan Volume | Required Bond Limit |
|---|---|
| $0 to $25 million | $25,000 |
| Over $25 million to $100 million | $50,000 |
| Over $100 million | $75,000 |
- Who Needs It: All individuals and business entities seeking to obtain a mortgage broker license in the State of Alabama
- Purpose: To ensure the public will receive compensation for any damages should the mortgage broker fail to comply with licensing law
- Who Regulates Mortgage Brokers in Alabama: The Alabama State Banking Department
Background
The Alabama Mortgage Brokers Licensing Act requires mortgage brokers operating in the state to obtain a license with the State Banking Department. The Alabama legislature enacted the licensing laws and regulations to ensure that mortgage brokers engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, brokers must purchase and maintain a mortgage broker bond (limits outlined in Table 1.1) to be eligible for licensure.
What is the Purpose of the Alabama Mortgage Broker Bond?
Alabama requires brokers to purchase the Mortgage Broker Bond as part of the application process to obtain a mortgage broker license. The bond ensures that the public will receive compensation for financial harm if the broker fails to comply with the licensing regulations. In short, the bond is a type of insurance that protects the public if the broker breaks licensing laws.
How Can an Insurance Agent Obtain an Alabama Mortgage Broker Surety Bond?
BondExchange makes obtaining an Alabama Mortgage Broker Bond easy. Simply login to your account and use our keyword search to find the “mortgage” bond in our database. Don’t have a login? Gain access now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone (800) 438-1162, email or chat from 7:30 AM to 7:00 PM EST to assist you.
At BondExchange, our 40 years of experience, leading technology, and access to markets ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.
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Is a Credit Check Required for the Alabama Mortgage Broker Bond?
Surety companies will run a credit check on the broker to determine eligibility and pricing for the Alabama Mortgage Broker bond. Brokers with excellent credit and work experience can expect to receive the best rates. Brokers with poor credit may be declined by some surety companies or pay higher rates. The credit check is a “soft hit”, meaning that the credit check will not affect the broker’s credit.
How Much Does the Alabama Mortgage Broker Bond Cost?
The Alabama Mortgage Broker surety bond can cost anywhere between 0.5% to 5% of the bond amount per year. Monthly subscription options are also available. Insurance companies determine the rate based on a number of factors including your customer’s credit score and experience. The chart below offers a quick reference for the approximate bond cost on the $25,000 bond requirement.
$25,000 Mortgage Broker Bond Cost
Table 1.2
| Credit Score | Bond Cost (1 year) | Bond Cost (1 month) |
|---|---|---|
| 700+ | $125 | $13 |
| 650 – 699 | $250 | $25 |
| 625 – 649 | $312.50 | $33 |
| 600 – 624 | $470 | $47 |
| 550 – 599 | $1,000 | $100 |
| 500 – 549 | $1,250 | $125 |
*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.
How Does Alabama Define “Mortgage Broker”?
Alabama Statute 5-25-2 defines a mortgage broker as “Any person who directly or indirectly solicits, processes, places, or negotiates mortgage loans for a borrower, or offers to solicit, process, place, or negotiate mortgage loans for a borrower.”
BondExchange now offers monthly pay-as-you-go subscriptions for surety bonds. Your customers are able to purchase their bonds on a monthly basis and cancel them anytime. Learn more here.
How Do Mortgage Brokers Apply for a License in Alabama?
Brokers in Alabama must navigate several steps to secure their Mortgage Broker License. Below are the general guidelines, but brokers should refer to the application checklist for details on the process.
License Period – The Alabama Mortgage Broker License expires on December 31 of each year and must be renewed before the expiration date
Step 1 – Meet the Net Worth Requirements
Applicants for the Alabama Mortgage Broker License must first amass a company net worth (assets – liabilities) of at least $25,000. Businesses must submit financial statements verifying their net worth when submitting their license application.
Step 2 – Purchase a Surety Bond
Brokers must purchase a mortgage broker surety bond (limits outlined in Table 1.1) prior to submitting their license application
Step 3 – Request an NMLS Account
The Alabama Mortgage Broker License application is submitted electronically through the Nationwide Multistate Licensing System (NMLS). To submit a license application, applicants must first request to obtain an NMLS account.
Step 4 – Complete the Application
All mortgage broker license applications can be completed online through the NMLS. Applicants must complete entire the application, including the following steps:
3.a Financial Statements – Brokers must submit a financial statement that has been prepared by a CPA with their license application
3.b Formation documents – All brokers are required to submit their articles of incorporation, organization, or partnership agreement with their license application. Businesses that were formed outside of Alabama must submit a Certificate of Existence, which can be obtained from the Alabama Secretary of State
3.c Background Check – All license applicants must submit an Authorization for Background Check form for each control person who owns at least 10% of the business entity
3.d Zoning Authorization – Brokers must submit a signed statement verifying their business location is not in a residential zoning area
3.e Fees – Brokers must pay a $700 licensing fee with their application
How Do Alabama Mortgage Brokers Renew Their License?
Mortgage brokers can renew their license online through the NMLS. License holders need to simply login to their account to access their renewal application. The Alabama Mortgage Broker License expires on December 31 of each year and must be renewed before the expiration date.
What Are the Insurance Requirements for the Alabama Mortgage Broker License?
The State of Alabama does not require mortgage brokers to obtain any form of liability insurance. Brokers must purchase and maintain a mortgage broker surety bond (limits outlined in Table 1.1)
How Do Alabama Mortgage Brokers File Their Bond?
Brokers should submit the completed bond form, including the power of attorney, electronically through the NMLS. The Mortgage Broker surety bond requires signatures from both the surety company that issues the bond and the broker. The surety company should include the following information on the bond form:
- Legal name and address of entity/individual(s) buying the bond
- Surety company’s name and address
- Bond amount
- Bond term
- Date the bond is signed
What Can Brokers Do to Avoid Claims Against the Alabama Mortgage Broker Bond?
To avoid claims on the Mortgage Broker Bond, brokers must follow all license regulations in the state, including some of the most important issues below that tend to cause claims:
- Do not engage, or allow representatives of the business to engage, in any acts of fraud
- Pay taxes and fees on time and in full
What Other Insurance Products Can Agents Offer Mortgage Brokers in Alabama?
Alabama does not require mortgage brokers to obtain any form of liability insurance. However, most reputable brokers will seek to obtain this insurance anyway. Bonds are our only business at BondExchange, so we do not issue liability insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.
How Can Insurance Agents Prospect for Alabama Mortgage Broker Customers?
The NMLS conveniently provides a public database to search for active mortgage brokers in Alabama. The database can be accessed here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.
What other Financial Service Bonds are Required in Alabama?
Alabama requires businesses to purchase specific bonds correlating with their license type. Below are all the different financial services bonds required by the State of Alabama:
- Sale of Checks: $10,000 for a single location plus an additional $5,000 for each additional location. The bond limit may not exceed $50,000
- Small Loan Company: $1,000 bond limit
- Money Transmitter: The bond limit is determined on a case-by-case basis
