Surety Bond News

Enacted in Hawaii, a new law is now in place affecting mortgage loan originators within the state. The new law which is labeled SB 1218 integrates the federal definition of a mortgage loan originator. The law also requires originators to obtain a surety bond in a quantity that would be calculated by the dollar amount of the loans originated. Should the loan originator be an employee or an exclusive agent of a licensee, the coverage under the employer’s surety bond would satisfy the bonding requirements. SB 1218 requires the surety bond to cover all of the originators. The State Governor prevented the bill, but the legislature reversed the veto and SB 1218 became law. SB 1218 was introduced on 1/27/2009 and enacted on 7/15/2009.

On 01/16/2008, a new law concerning charitable organizations and the former bond requirement set in the state of Hawaii. The new law titled SB 3171 sanctions the Attorney General to require the electronic filing and electronic signatures of the surety bond demanded of professional solicitors of a charitable trust. SB 3171 eradicated the surety bond requirement professional fundraisers must follow at a charitable trust so that only the professional solicitors will have to obtain a bond. The new bill became active on July 1, 2008.

New state legislation is changing the way many brokers and lenders will conduct future business, as there have been numerous changes in 2008-2009 timeframe which will affect mortgage brokers and mortgage lenders.

First, a primary change will be the increased required bond amounts along with tighter regulations that will be imposed on business transactions and pre-licensing certifications. Although some of this new state legislation has passed, it seems like many states are set waiting critical decisions from Congress, which is expected to jump start the weakened economy. Many states are taking a back seat to changing regulations until they see how the new president’s economic stimulus package will affect the mortgage industry, as well as being afraid to move too quickly to adopt new legislation, since remembering the demise of the sub-prime mortgage crisis which left many small mortgage brokers and lenders out of business or severely crippled. In addition, many states are looking to the government for their proposed solution to the housing crisis. The combination issues of the current economy & housing crisis may result in a decrease of licensing for brokers and lender in this upcoming year.

New legislation passed that went into effect mid 2008 and are effective for all renewals in 2009 & introduced in the following states: Connecticut, Iowa, and Maryland which have all increased the required bond amounts.

• Connecticut has increased their required bond amount from $40,000 to $80,000 effective August 1st, 2009.
• Iowa increased the required bond amount from $50,000 to $100,000 effective 12/31/08.
• Maryland has made increases in the bond amounts based on the volume of loans. Their $25,000 requirement has increased to $50,000, the $50,000 requirement has increased to $100,000, and their $75,000 requirement has increased to $150,000.

In addition, four (4) other states attempted to pass legislation that would increase the required bond amount and impose tighter requirements for mortgage brokers and lenders in 2008. Those states included Hawaii, Missouri, Oregon, and South Carolina, all which rejected the proposed increases and thereby postponing any decisions at this time. These states have concluded to revisit this legislation in 2009 once the economic situation is further determined for 2009. The state of Alabama had a proposal on the table to enact legislation requiring a bond for mortgage brokers and bankers for the 2009 license period. This legislation did not pass and will be revisited in mid 2009.

It is further expected that we will see many changes in 2009 to the legislation and bond requirements that affect mortgage brokers and lenders. The primary focus of the state legislation is expected to reduce the amount of claims and keep business owners working honestly and ethically. Keep in mind, that with the economy in crisis there will be many changes in the future that will affect your license and your bond. To remain best advised of these current changes, keep in contact with your state licensing agency.