If you haven’t obtained one yet, you are now overdue in complying with Massachusetts’ requirement that all mortgage lenders and brokers have a surety bond (you should have had it by December 31, 2008). If you are applying for a new license, the surety bond is part of your application.
The amount of the bond is different for lenders and brokers but for lenders, it is based on your volume of business in Massachusetts. If you are a lender, and the volume of the loans you have closed is reported on your Annual Report for the previous year as between $0-$49,999,999, then you must have the minimum bond of $100,000. If your closed loan volume is between $50,000,000 and $249,999,999, then your bond must be in the amount of $250,000. If you closed loans with a dollar volume of $250,000,000 or more, then you need a $500,000 surety bond.
For mortgage brokers, the amount of the bond is $75,000, regardless of how many Massachusetts loans you brokered in the previous year.
Those licensees who hold both a lender and a broker license need two bonds, a lender bond in the amount that corresponds to its closed loan volume and a $75,000 broker bond.
Both lenders and brokers will be required to submit Continuation Certificates each year to confirm that the surety bond is in effect and that it is in the proper amount.
Showing posts with label surety bonds. Show all posts
Showing posts with label surety bonds. Show all posts
Wednesday, January 21, 2009
Monday, August 11, 2008
Surety bonds
Mortgage brokers and mortgage lenders are frequently required to submit a surety bond as part of the licensing process. The bond guarantees that the mortgage broker/lender will obey the laws and regulations of the state in which it is licensed. In the event that the state banking department finds a violation of its laws or regulations, it can impose a fine or require the company to issue refunds to its customers. If the company does not make the required payments, the surety bond will be used to make the payments. When the bonding company makes the payment to the banking department, it then requires the mortgage company to reimburse the bonding company for all amounts it paid out under the bond.
Each state has its own language and required amount for its surety bond. Based on the language and amount of the bond, certain bond companies will not write surety bonds in certain states or will make the premiums to buy the bond very high. In the boom years that ended in 2006, it was very easy to get a surety bond. Underwriting was simple and premiums were low. But in the last two years, mortgage companies have gone out of business or filed for bankruptcy, leaving the bond companies to pay the claims that the mortgage companies should have. Since the risk has gone up to the bond underwriters, the costs of getting a surety bond have gone up for mortgage companies. Additionally, as the net worths of mortgage companies have gone down, it becomes harder for them to qualify to obtain or renew their surety bonds. Moreover a surge in litigation against mortgage brokers and lenders has made it more difficult to get approval for a surety bond. Start-up companies are being especially hard-hit by the new underwriting climate. Many of the surety bond companies refuse to underwrite surety bonds to new companies.
If you need a surety bond, you will have to expect to pay more than you have in the past. You can also anticipate that you may not qualify for as many bonds as you did in the past. This is the time to do your cost benefit analysis of each state in which you are licensed. Are the costs of maintaining your license in each state less than the fees you are making in each state? If not, get out of that state (follow each state’s rules for inactivating or surrendering a license) and cancel your registered agent and surety bond. If you intend to stay in the business, keep your financials looking healthy by putting earnings back into the business. Individual loan officers should be cognizant that in some states, their credit report must be submitted. You should also be aware that part of the underwriting process requires personal guarantees from the owners of the mortgage broker and lender companies. Even if the company goes out of business, the surety bond companies reserve the right to go after the owners to pay the claims from the banking departments.
It’s a difficult climate to be in the mortgage business and the state regulation will get tighter. Stay on top of the licensing requirements to ensure that your business stays in business.
Each state has its own language and required amount for its surety bond. Based on the language and amount of the bond, certain bond companies will not write surety bonds in certain states or will make the premiums to buy the bond very high. In the boom years that ended in 2006, it was very easy to get a surety bond. Underwriting was simple and premiums were low. But in the last two years, mortgage companies have gone out of business or filed for bankruptcy, leaving the bond companies to pay the claims that the mortgage companies should have. Since the risk has gone up to the bond underwriters, the costs of getting a surety bond have gone up for mortgage companies. Additionally, as the net worths of mortgage companies have gone down, it becomes harder for them to qualify to obtain or renew their surety bonds. Moreover a surge in litigation against mortgage brokers and lenders has made it more difficult to get approval for a surety bond. Start-up companies are being especially hard-hit by the new underwriting climate. Many of the surety bond companies refuse to underwrite surety bonds to new companies.
If you need a surety bond, you will have to expect to pay more than you have in the past. You can also anticipate that you may not qualify for as many bonds as you did in the past. This is the time to do your cost benefit analysis of each state in which you are licensed. Are the costs of maintaining your license in each state less than the fees you are making in each state? If not, get out of that state (follow each state’s rules for inactivating or surrendering a license) and cancel your registered agent and surety bond. If you intend to stay in the business, keep your financials looking healthy by putting earnings back into the business. Individual loan officers should be cognizant that in some states, their credit report must be submitted. You should also be aware that part of the underwriting process requires personal guarantees from the owners of the mortgage broker and lender companies. Even if the company goes out of business, the surety bond companies reserve the right to go after the owners to pay the claims from the banking departments.
It’s a difficult climate to be in the mortgage business and the state regulation will get tighter. Stay on top of the licensing requirements to ensure that your business stays in business.
Wednesday, May 14, 2008
New Requirements in Maryland
Maryland has new laws taking effect on June 1, 2008 that affect licensed lenders (which also includes mortgage brokers). The new requirements concern surety bonds and minimum net worths for licensees.
Maryland has always had a system of requiring surety bonds based on the volume of business in the previous 12 months. Effective June 1, 2008, if your company has done no business anywhere in the prior 12 months (you are a start-up) or up to $3,000,000 in closed mortgage loans, you will need a $50,000 bond. If you closed more than $3,000,000 but less than $10,000,000 in mortgage loans, you need a $100,000 bond. If your closed volume is more than $10,000,000 in the previous 12 months, you need a $150,000 bond. If your company has multiple offices, the largest surety bond you will need for all of the offices combined is $750,000.
Additionally, mortgage lender licensees will need a net worth of $25,000 if your company had no activity or up to $1,000,000 in loans closed in the previous 12 months. If you closed more than $1,000,000 and less than $5,000,000, you need at least $50,000 in net worth. If your dollar volume of loans closed was more than $5,000,000 you need a net worth of at least $100,000. Starting January 1, 2009, if you closed more than $10,000,000 in mortgage loans in the previous 12 months, you will be required to maintain a minimum net worth of $250,000.
Proof of compliance with the new net worth and surety bond obligations will be required when you renew your license or if you are being examined.
Maryland has always had a system of requiring surety bonds based on the volume of business in the previous 12 months. Effective June 1, 2008, if your company has done no business anywhere in the prior 12 months (you are a start-up) or up to $3,000,000 in closed mortgage loans, you will need a $50,000 bond. If you closed more than $3,000,000 but less than $10,000,000 in mortgage loans, you need a $100,000 bond. If your closed volume is more than $10,000,000 in the previous 12 months, you need a $150,000 bond. If your company has multiple offices, the largest surety bond you will need for all of the offices combined is $750,000.
Additionally, mortgage lender licensees will need a net worth of $25,000 if your company had no activity or up to $1,000,000 in loans closed in the previous 12 months. If you closed more than $1,000,000 and less than $5,000,000, you need at least $50,000 in net worth. If your dollar volume of loans closed was more than $5,000,000 you need a net worth of at least $100,000. Starting January 1, 2009, if you closed more than $10,000,000 in mortgage loans in the previous 12 months, you will be required to maintain a minimum net worth of $250,000.
Proof of compliance with the new net worth and surety bond obligations will be required when you renew your license or if you are being examined.
Thursday, May 1, 2008
Washington State Consumer Loan Company License
Washington State has a new law requiring lenders to be licensed under the Consumer Loan Company Law. The law becomes effective on June 12, 2008. The license permits, lending, funding, brokering, or loan origination services to Washington consumers or others with Washington real property. The applicant needs to provide a financial statement, a surety bond of $100,000.00 per office location (up to a total of $500,000.00) and principals of the company must submit to criminal and credit background checks.
As of May 1, 2008, all lenders must apply for the license through the Nationwide Mortgage License System. Washington State will not be accepting paper applications anymore.
As of May 1, 2008, all lenders must apply for the license through the Nationwide Mortgage License System. Washington State will not be accepting paper applications anymore.
Thursday, September 20, 2007
New Massachusetts Licensing Requirements
There are more new regulations that have taken effect in Massachusetts as of September 7, 2007.
All mortgage lender and mortgage broker license applicants now submitting applications must comply with new net worth and surety bond requirements. Mortgage broker applicants must submit recent financial statements that have been audited or reviewed by a certified public accountant with their application. Additionally, the Division of Banks requires mortgage lenders to maintain a net worth of not less than $200,000. The net worth requirement must be proved by the submission of company financial statements, at the time of initial application and on an annual basis, which have been audited in accordance with generally accepted auditing principals (GAAP) by an independent certified public accountant. The Division of Banks requires mortgage brokers to maintain a net worth of not less than $25,000 and mortgage brokers must submit company financial statements, at the time of initial application and on an annual basis, which have been audited or reviewed by an independent certified public accountant.
There are also new surety bond requirements that are now in effect. Mortgage lenders must maintain a surety bond in a sum to be based on the amount of the Applicant's aggregate mortgage loans, as determined by the Division of Banks, but in no event shall the sum of the bond be less than $100,000, up to a maximum of $500,000. Mortgage brokers must maintain a bond of $75,000.
All mortgage lender and mortgage broker license applicants now submitting applications must comply with new net worth and surety bond requirements. Mortgage broker applicants must submit recent financial statements that have been audited or reviewed by a certified public accountant with their application. Additionally, the Division of Banks requires mortgage lenders to maintain a net worth of not less than $200,000. The net worth requirement must be proved by the submission of company financial statements, at the time of initial application and on an annual basis, which have been audited in accordance with generally accepted auditing principals (GAAP) by an independent certified public accountant. The Division of Banks requires mortgage brokers to maintain a net worth of not less than $25,000 and mortgage brokers must submit company financial statements, at the time of initial application and on an annual basis, which have been audited or reviewed by an independent certified public accountant.
There are also new surety bond requirements that are now in effect. Mortgage lenders must maintain a surety bond in a sum to be based on the amount of the Applicant's aggregate mortgage loans, as determined by the Division of Banks, but in no event shall the sum of the bond be less than $100,000, up to a maximum of $500,000. Mortgage brokers must maintain a bond of $75,000.
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