The New York State Department of Financial Services recently re-adopted a registration procedure for mortgage loan servicers. As a part of the process, professionals need to meet bonding requirements
and provide appropriate errors and omissions (E&O) insurance coverage.
The registration ensures that all operating mortgage loan servicers will comply with state rules that govern their trade. The license bond, fidelity bond and E&O insurance provide additional security for the state and its citizens against servicers’ potential acts of fraud, embezzlement, misplacement, or forgery.
Here are the most important points of the re-adopted legislation that mortgage loan servicers in the state of New York should consider.
The reinstated registration process for NY mortgage loan servicers
As of July 23, 2017, any person or entity wanting to operate as a mortgage loan servicer in the state will need to undergo a registration procedure with the Department of Financial Services. The steps are outlined in Supervisory Procedure MB 109. Supervisory Procedure MB 110
changes the procedure for change in control of a servicer.
Applicants have to present a completed application form, fingerprint cards, and proof of payment of a $3,000 investigation fee, a $102.25 fingerprint processing fee, and a $100 NMLS processing fee.
In the application form, mortgage loan servicers have to provide the following information:
►Business entity information
►Records of previous licenses
►Proof of experience and qualifications
There is a transitional period for mortgage loan servicers who were active as of June 30, 2009 and who applied for registration before July 31, 2009. They are deemed in compliance with the registration rules as long as the Superintendent does not deny their application.
The re-adopted surety bond and insurance requirements
An indispensable part of the newly reinstated registration for NY mortgage loan servicers is to post a minimum surety bond amount of $250,000. The exact amount is determined by the Department during the registration process.
Mortgage loan servicers also have to obtain a fidelity bond and errors and omissions (E&O) insurance coverage
. Their amounts depend on the aggregate dollar volume of business conducted in New York two years before the current year, as follows:
►Up to $100,000,000 aggregate dollar amount: $300,000
►Of the next $500,000,000: $300,000 plus 0.15%
►Of the next $400,000,000: $300,000 plus 0.125%
►Of the amount over $1 billion: $300,000 plus 0.1%
The deductible amount of the fidelity bond and the E&O policy cannot exceed $100,000 or 5% of the face bond amount, whichever is greater.
The purpose of the surety bond and insurance requirements is to provide an extra layer of safety for the licensing authority and the general public that a registered mortgage loan servicer will comply with all applicable state laws. These security instruments can provide a compensation in case an affected party suffers losses as a result of a servicer’s illegal actions.
How the bonding costs are formulated
With the reinstated registration requirements, it’s important for mortgage loan servicers to know how their costs will change. Besides an insurance premium for their E&O coverage, they also need to account for the bonding premiums on their license and fidelity bonds.
The bond price that mortgage professionals have to pay depends on the bond amounts set by the Department. The higher the required amount, the higher the premium that needs to be covered on it.
Besides this, the cost is determined on the basis of the personal and business finances of the bond applicant. The surety that provides the bonding needs to consider factors such as credit score, business financials, and assets and liquidity. The servicer’s professional experience can also play a role in the price formulation. If the candidate is deemed as financially stable, the bond premium will be lower.
Applicants with problematic finances often can still get bonded, but at a higher price. Servicers who are planning to apply for their bonds can work on reducing their costs. Improving the personal credit score and completing any outstanding payments can decrease the bond cost.
What the changes mean for NY mortgage loan servicers
The re-adopted registration, bonding and insurance requirements create a solid framework for the mortgage loan servicing field in NY.
In practical terms, the changes impose a new administrative process that servicers have to go through. There are also financial consequences, as professionals need to cover bond and insurance premiums in order to meet the registration requirements of the Department.
While introducing a heavier startup process for servicers, the emergency regulations aim to raise the standards in the loan servicing field. Their goal is to ensure a higher level of security for all parties involved. In the long run, improved industry standards are in the interest of diligent and hard-working mortgage loan servicers, as the reputation of their trade is boosted.