Arizona Mortgage Originator Bond Requirement Update

ArizonaArizona state has written a new bill relating to new mortgage originator requirements. The new bill, HB 2143, requires mortgage originators to be employed by a mortgage banker, mortgage broker or consumer lender and must also be covered by a surety bond obtained by their employer. The originators are subject to licensure following present law.

HB 2143 also produces a recovery fund. The recovery fund will be supported by fees determined by the Superintendent of Banking for mortgage originators attaining their original license; and fees before license renewal with any year in which there is less than $2 million in the fund. The recovery fund pays for direct out-of-pocket damages, including reasonable attorneys’ fees and litigation costs. A $200,000 per claim limit is set against the fund, plus a $500,000 aggregate limit for any claims against an individual licensee. The superintendent is permitted to appeal the court to prorate all claims against a licensee. If the recovery fund has inadequate funds to pay claims against it, the superintendant can wait until satisfactory funds have been deposited and fulfill due claims, or portions thereof, in the order received, plus interest of 4% per year.

When originally written, the bill demanded that loan originators submit their employer’s surety bond and pay $100 to the recovery fund in order to acquire their license. The SFAA asked the AIA to amend the bill to illuminate the issue of whether the surety bond or the recovery fund responded first if a claim were to arise against a loan originator. The modification that the SFAA drafted asks the bonds required from mortgage brokers and bankers to be exhausted before a claim is made against the recovery fund. The AIA was victorious in having those requirements incorporated into the bill before it was accepted by the Senate and went back to the Houses for agreement. There were additional final changes to HB 2143; with existing law, mortgage brokers must obtain a $10,000 surety bond, with the bond amount varying from $25,000 to $100,000 which is based on the total assets and unpaid loan balances. HB 2143 also raised the amount of the employer’s surety bond to a minimum of $200,000. The new law includes new requirements for bonding and payments to the recovery fund. Originators are asked to submit their employer’s bond in order to acquire a license, while at the same time allows the originator to pay the quantity that the superintendant directs into the recovery fund or post the employer’s surety bond. HB 2143 also states that if an originator is functioning under the employer’s bond, the originator doesn’t have to pay into the recovery fund. If the employer opts to obtain the smaller license bond amount required for the employer’s licensure, then any of its employees that are licensed as originators will have to pay assessments into the recovery fund. Alternatively, the employer may obtain its own license bond and then pay the required recovery fund assessment on behalf of all its licensed originators to abide by the license requirements. Should the employer choose to post the upper minimum bond amount, which is at least $200,000, to protect all the loan originators it employs, ten of the originators will not have to pay into the recovery fund.

Eric is the Chief Marketing Officer of JW Surety Bonds. With years of experience in the surety industry, he is also a contributing author to the surety bond blog. He has held a range of different roles within the surety industry, from agent assistant to bond issuer, which gives him a unique insider perspective on surety related topics.


Warren Strycker

Most confusing. Insurance companies have not been informed, don't know what a loan originator surety bond is though the state AZDFI requests it without details to follow. Employer says I have to pay $100, but to whom and when? Lots of unanswered questions.

Michael Weisbrot

Many general property and casualty insurance agents don't know suretyship well enough to write it. In fact, they often broker their business to surety only agencies like ours.

We write mortgage originator bonds with ease. Sometimes we see the employer footing the bill, other times it's the employees. Usually that is dependent on the bond premium, which can vary greatly, so don't assume it is definitely $100, as surety bonds are a form of credit.

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