HB 169: License Bond—Mortgage Brokers and Lenders
This will repeal the existing bond requirements for mortgage lender and brokers. The previous law required a surety bond to be posted in the amount of $25,000 plus another $10,000 per branch. The State now has a mortgage recovery fund under the new law instead of a surety bond. This law became effective July 1, 2009.
Arkansas revised its law for mortgage brokers, bankers, and servicers. HB 1881 now states that there is no set bond amount. The Securities Commissioner now determines the bond amount based on the loan activity in the past year of the broker, banker, servicer. This needs to be of a minimum of $100,000. These bonds will also cover the employees of the broker, banker or servicer.
Cash or other securities are no longer accepted in lieu of the surety bond.
Mortgage Lenders and servicers in the state of California have a minimum surety bond amount of $50,000, while a minimum bond amount of $25,000 is in place for finance lenders and brokers. Also, based on the amount of loans originated, the state may increase the bond amount accordingly.
Mortgage broker bonds, mortgage banker bonds and mortgage lender bonds are all obviously closely related to one another in that they all provide some sort of guarantee for the performance on a person or entity involved in a mortgage loan. Often times the same (or very similar) bond form may be used for each of these types. However, they differ in who and what exactly they guarantee. These commercial surety bonds are actually named after the principal of each bond. For example, the principal for a mortgage broker bond is the mortgage broker required to obtain the surety bond.
Mortgage brokers submit mortgage loan applications on behalf of their customers to individual banks and lenders, and then assemble loan costs and escrow funds to submit to banks and lenders they’ve opted to do business with. Mortgage bankers and lenders offer mortgage loans and various other forms of secured as well as unsecured loans.
Subsequently, each of the 50 states require that these businesses (mortgage brokers, mortgage bankers and mortgage lenders) obtain necessary licenses to conduct business in that state, and also that they post either a mortgage broker bond, mortgage banker bond or a mortgage lender bond. These surety bonds are required by the state, which for these bond types happens to be the obligee for the bond, of the respective principal (mortgage broker, banker or lender) in order to guarantee that the principal will follow all applicable state laws pertaining their specific industry, and also that the principal properly accounts for and remits funds received from customers. These surety bonds also protect the public from any form of fraud or misrepresentation by the bond’s principal, while allowing the state to keep a hold-harmless agreement for any such misconduct.
At first glance, some people may assume that mortgage bonds (mortgage banker bonds, and mortgage broker bonds) are all the same. While there are some similarities between the two types of commercial bonds mentioned above, there are also some clear differences which this article will outline.
Mortgage Banker vs. Mortgage Broker: Most surety bond companies classify mortgage banker and mortgage broker bonds in a similar fashion, but there are some operational elements to each that differentiate the two. Mortgage brokers serve as a “middleman” by bringing principals together with banks that end up loaning qualified principals funds. Mortgage bankers (also referred to as mortgage lenders) are the entities that actually lend money to the principals, and they act as both the banker and broker for the loan. Understanding the difference between a mortgage broker and a mortgage banker (or lender) is the first step toward understanding similarities and differences between mortgage broker and banker bonds.
Bond Amounts: Perhaps the most obvious difference between the two types of bonds lies in the amounts in which they are commonly written for. Mortgage banker bonds are typically much larger, or written for much more money, than mortgage broker bonds are, and can be two to three times the size of mortgage broker bonds. Therefore, qualifying for mortgage banker bonds can be much more challenging for a prospective principal.
Bond Forms: Every state will have a separate bond form for mortgage banker and broker bonds, which will spell out exactly that the specific bond guarantees. The bond forms may differ depending on the language of each state. While any given state’s bond forms for each type may appear similar, it is important to carefully read the bond form, or work with a knowledgeable bond agent, to ensure you understand exactly what is being guaranteed.
Similar Risk for Mortgage Bankers and Brokers: Contrary to popular belief mortgage banker and mortgage broker bonds both have very similar risk factors. Seeing that the bond amounts for mortgage banker bonds are on average significantly higher than those of mortgage broker bonds, most people would think that mortgage bankers face more risk, however that assumption is not necessarily accurate. While the nature of a mortgage banker’s job makes the risk they face obvious to most, the many challenges mortgage brokers face seem to level the playing field when it comes to risk. Recent studies have further proven that the claims ratios for both types of bonds are comparable.
In July 2008, North Carolina House Bill 2463 was passed, and contained a number of changes to the state’s “Mortgage Lending Act” (Article 19 of G.S. 53). While Article 19 applied to just mortgage bankers and mortgage brokers (mortgage lenders), HB 2463 extended coverage to include “mortgage servicers” in the state of NC.
This bill requires mortgage servicers to post a $150,000 license bond (type of commercial bond/surety bond), the same type/amount already required by other mortgage lenders operating inNorth Carolina.
With the signing of this bill, the NC Banking Commission is now authorized to charge a fee for expenses incurred during examinations of any licensees’ books/records in order to ensure compliance. Before HB 2463, such examinations were paid for by the Commission.
To clarify, the term “mortgage bankers” pertains to a person that makes mortgage loans, while “mortgage brokers” are people who solicit applications for such loans, issue loan commitments, etc.
Legislation was recently passed that now places Alaska-based mortgage bankers and mortgage brokers under the direct regulation of the state’s Division of Banking and Securities. The new legislation requires all brokers and lenders that apply in the state after 1 July 2008 to ensure compliance with the new regulations. The law requires all mortgage brokers and mortgage bankers throughoutAlaska, not just new applicants, to be in compliance with the new regulations no later than 1 March 2009.
Some of the new regulations under the Alaska Division of Banking Securities are a more extensive background check, additional monitoring of company records and applications. There will also be a mandatory examination and annual continuing education requirements for Mortgage Originators. A surety bond in the amount of $25,000 will be required as well. However, sinceAlaskais not considered to be a “brick & mortar state”, physical offices will not be required for mortgage brokers/bankers.