Surety Bond Encyclopedia

Mortgage Broker - NMLS Bond - Statewide in Alabama

Brief Summary

The Alabama mortgage broker bond is the instrument the State Banking Department accepts in place of tying up $25,000 of tangible net worth, and it is filed through NMLS with the rest of the application. You pay an annual premium, the bond runs to the State of Alabama for the benefit of any borrower you harm, and a surety can quote it from the owner's credit in a day.

Alabama licenses mortgage brokers under the Mortgage Brokers Licensing Act, Code of Ala. Title 5, Chapter 25, administered by the State Banking Department, Bureau of Loans. Section 5-25-5 lets the department require a surety bond in lieu of the $25,000 tangible net worth showing every applicant otherwise makes. The bond is in favor of the State of Alabama for the benefit of any person damaged by the broker's breach of contract or violation of law, and the department sets the amount. Applications are filed through NMLS with a $600 nonrefundable fee.

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How to Apply for a Mortgage Broker - NMLS Bond:

Confirm with the Bureau of Loans whether your application needs the bond in lieu of the $25,000 net worth showing, and the amount the department has set.
Legal entity name exactly as it appears in your NMLS company record.
Owner or principal name, home address and Social Security number for the surety's credit review.
Complete the bond application and review the quoted annual premium.
Pay the premium and receive the executed bond naming the State of Alabama as obligee.
File the bond with the mortgage broker application through NMLS along with the $600 nonrefundable application fee.

Detailed Information About the Alabama Mortgage Broker - NMLS Bond:

Bond or net worth, and who decides

Code of Ala. 5-25-5 requires every applicant for an Alabama mortgage broker license to show tangible net worth capital of $25,000. The same section lets the State Banking Department require the applicant or licensee to obtain a surety bond in lieu of the net worth requirement, in an amount the department determines. That is the bond on this page. It is a substitute for the capital showing, not an add on, and the department decides whether it is required and for how much. Confirm the current figure and the filing method with the Bureau of Loans before the surety executes the bond.

The bond is in favor of the State of Alabama for the use, benefit and indemnity of any person who suffers damage or loss as a result of the broker's breach of contract, any obligation arising from it, or any violation of the law. In practice that means a borrower harmed by a broker can look to the bond, and the surety then recovers from the broker under its indemnity agreement.

Who is exempt

Code of Ala. 5-25-3 keeps a long list of people outside the Act. Depository institutions and their owned subsidiaries, bank holding companies, credit unions and their affiliates do not need a mortgage broker license. Neither does a company already licensed under Code of Ala. 5-19-22, the Consumer Credit Act, which is why many Alabama mortgage lenders hold that license instead. Attorneys practicing in Alabama who do not primarily negotiate mortgage loans, real estate licensees who help with financing without compensation, persons acting under a court order, and federal or state chartered agencies are exempt. Employees of a licensed broker or an exempt entity are covered by the employer, though individual mortgage loan originators still need their own originator license.

Filing through NMLS

The State Banking Department takes mortgage broker applications through the Nationwide Multistate Licensing System. The application carries a $600 nonrefundable fee under 5-25-5. The legal entity name on the bond has to match the name in NMLS exactly, which is the most common reason a bond is sent back. Keep the bond continuous so it does not lapse between license years.

What the surety looks at

The premium is a percentage of the bond amount set by the surety after reviewing the owner's personal credit and the company's financial statements. A clean credit history and a stable balance sheet draw the lowest rate. The premium is paid annually for as long as the bond stays in force.

Eligibility and Requirements for a Alabama Mortgage Broker - NMLS Bond:

A surety company authorized to write surety in Alabama.
State of Alabama named as obligee for the benefit of any person damaged by the broker, per Code of Ala. 5-25-5.
Bond amount as determined by the State Banking Department.
Entity name on the bond matching the NMLS record exactly.
Owner credit review. Credit usually sets the rate rather than deciding eligibility at this size.
Continuous bond kept in force through each license renewal.

Alabama Mortgage Broker - NMLS Bond FAQs:

Do I need the bond or the $25,000 net worth?

Every applicant has to show $25,000 in tangible net worth under Code of Ala. 5-25-5, but the Banking Department may require a surety bond in lieu of that showing. Ask the Bureau of Loans which applies to you and what amount the department has set before you apply.

We already hold an Alabama Consumer Credit Act license. Do we need a mortgage broker license too?

No. Code of Ala. 5-25-3 exempts persons licensed under 5-19-22, the Consumer Credit Act, from the Mortgage Brokers Licensing Act.

Are banks and credit unions exempt?

Yes. Depository institutions, their owned subsidiaries, bank holding companies, credit unions and their affiliates are exempt under 5-25-3, along with their employees acting within the scope of employment.

Do my loan originators need their own bond?

Individual mortgage loan originators need their own originator license, but 5-25-3 exempts employees of a licensed broker from the company license. The company bond covers the business. Check with the Banking Department for any originator level requirement.

Who can claim on the bond?

The bond runs to the State of Alabama for the use, benefit and indemnity of any person who suffers damage or loss from the broker's breach of contract, any obligation arising from it, or a violation of law.

What does the premium cost?

The surety quotes a percentage of the bond amount based on the owner's personal credit and the company's financials. Stronger credit and a clean licensing history earn the lowest rate, and the premium is paid once a year while the bond is in force.