Surety Bond News

HB 3790 is a new South Carolina State law that was recently presented affecting mortgage loan originators. The new law requires mortgage loan originators to acquire a surety bond. HB 3790 requires that the surety bond covering the originator must be in a quantity calculated by the originator’s loan volume. When it comes to the law that was enacted in 2009, a mortgage lender can be required to acquire a surety bond in a quantity spanning from $50,000 to $150,000 while a mortgage broker can be required to attain a surety bond in an amount ranging from $25,000 to $55,000.

SB 673 is a new bill introduced in South Carolina relating to mortgage lenders and brokers. The new bill amends the mortgage broker surety bond requirement and ratifies a new bonding requirement for mortgage lenders. The surety bond amount must be calculated by the sum dollar amount of loans originated in a calendar year in the State. The mortgage lenders bond amounts are as follows: $50,000 for $0 to $49,999,999 in loan volume; $100,000 for $50 million to $249,999,999 in loan volume; and $150,000 for loan volumes beyond $250 million. The surety bond can be no less than $150,000 regardless of the loan volume. The mortgage brokers must abide by the new the law which requires a surety bond in an amount as follows: $25,000 for $0 to $49,999,999 in loan volume; $50,000 for $50 million to $99,999,999 in loan volume; and $55,000 for amounts beyond $100 million. The previous law required a $10,000 license bond for mortgage brokers. As originally written, the surety bond quantities for mortgage lenders varied from $150,000 to $500,000, and SFAA and AIA cooperated to achieve surety bond amounts that uphold the value of the bond and make them broadly obtainable. The SB 673 became active on January 1st, 2010.

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.