Surety Bond News

One of the many new requirements that has recently been put into place is that the state of Kansas now requires home inspectors to register with the Home Inspectors Registration Board and obtain a fidelity bond in an amount of no less than $10,000.00 for employee dishonesty coverage. An employee dishonesty bond protects against employee theft, and up until recently, this type of bond has not been required by any sort of public entity. Business owners obtained these bonds on their own – and the main reason why individuals purchase these bonds was to increase business and make their clients feel at ease, making business owners more profitable in the long run. This new Kansas law also requires a separate proposal of proof of financial responsibility, which can be a surety bond in an amount of no less than $10,000.00. Bills of this nature have been discussed in other states, but not all of them have passed. These bills would have required most home inspectors to be licensed and to attain liability insurance in an amount to be decided by regulation, obtain a surety bond, or uphold net assets of $100,000.00.

Like any other business facing a new surety bond requirement, home inspectors may be surprised to find out that suretyship is a form of credit. Therefore, applicants will see a range of different rates depending on their assessed risk. Standard bond rates are usually 1-3% for commercial bonds, while higher risk applicants can expect to see rates in upwards of 15%.

The Connecticut House Bill 5577 increases the mortgage bond requirements in the State of Connecticut by doubling the amount of existing bonds. This Bill became effective on July 1, 2008. The passing of this Bill is not good news for licensed Mortgage Brokers and Lenders in the State of Connecticut, since this Bill requires that all Mortgage Brokers and Lenders carry a bond for $80,000. All licensed Brokers and Lender must be compliant by August 1, 2009.

What will this mean to the thousands of Mortgage Brokers and Lender in the state of Connecticut? Bottom-line financially, they will be paying more for their Surety Bonds to be compliant with the state guidelines. The Surety Companies will be looking a bit closer at applications and increases for bonds in Connecticut due to the now large requirement of $80,000. Surety underwriters will be looking a bit closer at Net Worth of the business and the owners of the company. They will want to make sure there will be enough cash in reserves to handle any claims that could arise.

Due to the increased bond requirements, the affect on Mortgage Brokers and Lenders that may have issues with personal credit will result in difficulty securing lower rates for these bonds. The bill allows for in increase in personal net worth from $25,000 to $50,000. There will be a few markets that will be positioned to write these bonds, but overall it can be expected that they will be looking for larger premiums, due to the increased financial risks.

In addition, this bill will combine existing “First “and “Second” mortgage expert licenses into one combined license that will cover all activities and require that all applicants are using the Nationwide Mortgage Licensing System (NMLS). The state will also require that the license have an expiration date of December 31st of the following year.

To summarize further changes in the Bill, the State of Connecticut requires each licensee to contact the state license center, if any of the following occur:

• Licensee experiences a bankruptcy
• Criminal Indictment of any type
• Provide notice of license denial, cease and desist, license suspension, and or fines from any other licensing entity
• Notification by any agency of the Attorney General
• Any revocation of a warehouse line of credit
• Notification of any license holders owning over 10% of the company filing bankruptcy
• Notification of ownership changes

Neglecting to report any of the occurrences above could result in suspension or revocation of a license.

With all these changes in the State of Connecticut, we can expect the Surety Companies to tighten their guidelines and underwriting practices and these bonds will not be as easy to get as they have been in the past. For specific rules and regulations, it is strongly recommended visiting the Connecticut State Website for more specific licensing requirements.