Google is no stranger to California regulations, and even knows a thing or two about surety bonds in the state. Last year, when Google started launching tests for its self-driving cars on the streets of California, the state mandated that it posts a surety bond before the tests could begin.
Now it’s been announced that Google has become a licensed mortgage broker in California. The company launched a mortgage comparison tool as part of its Google Compare service, which currently serves as a tool for car insurance comparison in the U.S. What’s more, Google has announced that the service will soon extend to other states.
This brings up some interesting regulatory questions. Would Google need to get a mortgage broker bond in the state, and would the company be liable for surety bond claims? Let’s look into the issue in more detail and try to answer these questions.
Is Google Really a Mortgage Broker?
To answer that question, let’s take a step back and see what the new service will entail. Similarly to the car insurance service, users will be able to enter a ZIP code and see a list of borrowers– approved by Google– and their rates, as well as ratings and reviews from other users.
They will also be able to use Google’s mortgage calculator to enter values such as loan amount, home value and credit score, to get suggestions that best suit their particular situation. You can contact the lender on your own, or Google can make an anonymous call on your behalf.
Since Google will be connecting lenders and borrowers, and charging lenders a fee, this means Google is essentially a mortgage broker in practice.
Will Google Need to Post a California Mortgage Broker Bond?
The state of California requires all mortgage brokers to obtain a mortgage broker bond prior to getting licensed. The mortgage broker bond is a type of license surety bond that makes sure clients of mortgage brokers can be compensated in cases of fraud.
Each bond has a specified amount, which signifies the maximum sum up to which a defrauded client can be compensated. The holder of the bond pays annual premiums, which are a small percentage of the bond amount, in order to maintain the bond. If you want to learn more about what surety bonds are, you can check this helpful guide.
Fortune 500 companies are often exempted from posting surety bonds, because their financial strength is guarantee enough that they are capable of compensating any financial losses their clients suffered because of them. There are exceptions, however, and Google has already been one of them. California’s DMV not only mandated them to post a surety bond for their driverless cars, but it was in the exceptional amount of $5 million. As a point of comparison, auto dealers in California are required to post a $50,000 bond.
Will Google Be Liable for Surety Bonds Claims?
Google already has a mortgage broker license, yet the state hasn’t required them to post a surety bond. It is often the case, however, that these types of regulations come later on, as businesses grow and regulators realize the need to act in order to protect consumers.
The regulation may not come in the form of surety bond. It may be a type of collateral or a trust fund, but some sort of protection may likely be required, which can be used as the basis of a claim. After all, all other California mortgage brokers are still required to get mortgage broker bonds. After the financial crisis of 2008, policymakers have been cautious and have been
putting everyone in the mortgage industry under increased scrutiny. One thing is clear: if Google has to post a mortgage broker bond, the current amount of $25,000 will simply not be enough for a company with such a scale of operation.
As Google Comparison for mortgages extends to other states, many of which also required mortgage broker bonds, they may respond differently than California does.
Implications for the Mortgage Industry
When Google decides to do something, they usually invest a lot of resources into doing it. So should mortgage brokers in California and nationwide be worried about their jobs? The answer seems to be “No.” According to brokers, interview by the National Mortgage Professionals, many people aren’t in the habit in shopping for mortgages.
But even if they start as a result, many people think this will only benefit mortgage brokers. Borrowers will realize they should look longer until they find the best deal and mortgage brokers will be there to help. The very same borrowers will still need help going through all the complicated regulations, which is another area of expertise for brokers.
It will also make mortgage brokers invest more in their online presence and marketing, which is certainly a good thing and can help bring them more customers.
What do you think of Google’s entry into the mortgage brokering industry? Should they be required to get a mortgage broker bond? Do you think they will affect your business in any way? Share your thoughts in the comments below.
Vic Lance is the founder and president of Lance Surety Bond Associates.
He is a surety bond expert who helps mortgage brokers become licensed and bonded.