Not if you’re paying premiums of $5 per thousand (or 0.50 percent) of the bond amount! The premium you pay is certainly dependent on various underwriting factors: 1. Do you have decent credit? Not great. Just decent. You probably do or you wouldn’t be licensed. 2. Do you have any skeletons in your past? Bankruptcies, felonies, prior bond claims, etc. You probably don’t or you wouldn’t be licensed.
3. How much bonding do you need? There is a level of bonding that is based primarily on underwriting the owner(s) personally. Above that level, business and personal financial statements are considered as the primary focus of the underwriting.
4. What bond carrier is bonding you? Some are simply better than others at this particular line of business. Some carriers view mortgage bonds as more risky than other types of bonds. Their pricing and underwriting process is very relative to that perception of risk.
5. What bond agent/broker do you use? That broker is your path to the surety market. Their knowledge of and access to bond carriers has a direct relationship with what the price and process is for your bond.
By far, the variable that obviously has the biggest impact on your bond pricing is number five—your broker. That’s where your access to the marketplace starts—or stops.
The mortgage bond market has changed significantly over the past few years. While the industry bubble was being inflated, carriers started becoming increasingly nervous about what would happen when it eventually popped. Some proactively began to increase prices, tighten underwriting, raise qualifications and limit exposures. Once the bubble burst, others reactively did the same and some even stopped writing mortgage bonds entirely.
While average surety pricing used to be at a widely-available rate of $7.50 per thousand a few years ago, it quickly moved up to $10 per thousand. Several carriers positioned themselves at even higher rates in order to absorb the flurry of claims and uncertainty brought on by the industry’s implosion and increased regulation. Those carriers that had been writing mortgage bonds for years and had large exposures were suddenly faced with game-changing events and conditions that forced them to endure financial losses and realign their perspective of risk.
Other carriers (and brokers), seeing a competitive window of opportunity due to the change in the marketplace, introduced rates as low as $6 per thousand and even $5 per thousand.
Stop throwing away extra money year after year after year. If you have had your bond for a while and your price hasn’t changed, it’s probably worth asking your bond broker why. If you don’t like the answer or the price, it’s probably worth a little time to shop for a new broker—and probably one who specializes in surety. Search online. Talk to your colleagues. Ask your trade association. Sometimes the first answer isn’t always the best answer.
Mason Grashot, CPA is president of The Bond Exchange, a national insurance agency focused on surety bonds with a unique specialty practice centered on the mortgage profession. As the endorsed strategic partner of NAMB—The Association of Mortgage Professionals, The Bond Exchange services thousands of surety bonds through programs designed specifically for the mortgage industry. For more information, call (501) 224-8895 or visit www.thebondexchange.com.
