Hawaii has created a “recovery fund” in lieu of their mortgage broker bond requirement, which is repealed at the end of 2010. The change helps fraudulent loan originators and penalizes those who play by the rules. In addition, it makes it more difficult and costly for the public to collect payment on a claim.
Bad For The Public:
Hurting the victims
According to the Department of Commerce & Consumer Affairs, “A consumer will be required to obtain a judgment from a court and will have to exhaust all other remedies before applying for recovery from the fund.”. So after a mortgage loan originator commits fraud, the victim must then hire legal counsel to file a judgment. Unfortunately, the victim is out of luck if the judgment is over $25,000 since that is the max the fund will pay out to an individual.
No Skin In The Game = More Fraud
With a surety bond requirement, each loan originator had to file a bond to guarantee their specific company. In the world of suretyship, bonding companies require corporate indemnification, as well as personal indemnification of all owners and their spouses, holding the surety harmless in the event of a claim. In layman’s terms, that means if a claim is paid out, the surety will pursue the company, it’s owners, and the spouses of the owners for financial reimbursement, including legal fees. If they are unable to reimburse the surety, they will never be bonded again.
More Government Bureaucracy
If a claim occurred under the bond, a licensed bonding company would handle the payout. There is no requirement to obtain a legal judgment in the courts first. Bonding companies will refuse invalid claims, but would risk their license to do business in the state should they refuse to pay a valid claim. I think most of the public would prefer dealing with a private company that is held accountable rather than working their way through the courts, then having to deal with more government bureaucracy with the recovery fund.
Why it’s bad for Hawaiian Mortgage Loan Originators:
Now that the government has setup a recovery fund, there is no underwriting to ensure those who are likely to commit fraud pay more into the fund. Some might call this a level playing field, I prefer to call it socialism. Why should those who play by the rules be subject to paying the same amount as those who don’t?
What is the solution?
Hawaii’s mortgage bond requirement was small when compared to other state requirements. Some states have requirements over $100,000 where Hawaii’s was only $15,000. A bond requirement is the right solution for the reasons above. However, the state’s previous requirement was too small and out-dated. A requirement $50,000 (or more) provides the public more protection than the current recovery fund and helps to keep more fraudulent companies out of the playing field.
A new law was introduced concerning auto dealers within the State of Vermont. The new law, which is named SB 282, amplifies the quantity of the surety bond required of auto dealers. The present legislation requires a surety bond, a letter of credit or certificate of deposit in a quantity stretching from $5,000 to $15,000; this is calculated by the amount of units sold in the prior year. SB 282 boosts the minimum required bond quantity to $20,000 and the maximum bond amount to $35,000. 
HB 366 is a new bill that was presented in Utah State concerning pawn brokers. The new bill requires pawn brokers that sell, trade, or pawn motor vehicles as a function of their usual business practices to become licensed as a used motor vehicle dealer. HB 366 requires used motor vehicle dealers to acquire a surety bond to attain the license required under the newly enacted legislation for supplementary locations. HB 366 also requires a $75,000 surety bond in relation to a dealer’s license.
New and used car dealers in the State of Connecticut must follow new legislation that was recently enacted. The new law, which is referred to as SB 414 boosts the surety bond that is required of both new and used car dealers from $20,000 to $50,000. The present legislation authorizes the Commissioner of Motor Vehicles to require a increased surety bond amount from a license applicant; this is calculated by the applicants financial circumstance. 
Plumbers and household installers within the State of Minnesota must abide by a new bill that was recently enacted. The new bill is titled SB 2510 and modifies numerous surety bond requirements relating to plumbers and household installers. SB 2510 terminates the previous exclusion of the surety bond requirements for plumbers working under master plumbers. Now plumbers must acquire a minimum $25,000 surety bond under the present legislation. The new bill also states that the present surety bond required for manufactured home installers, residential roofers and sign installation contractors now calls for a “biennial” surety bond. The present legislation requires a $15,000 surety bond for residential roofers and a $2,500 bond for manufactured home installers.
