Financing Law (CFL) License - NMLS Bond - Statewide in California

Brief Summary

The number depends on what you originate, not on what you call yourself. A CFL licensee that makes no residential mortgage loans and employs no mortgage loan originators posts $25,000. A licensee that does originate residential mortgages moves through $25,000, $50,000, $100,000 and $200,000 based on last year's aggregate volume. One bond covers all your licensed locations, so branches do not multiply it. Pull last year's origination total before anyone quotes you.

Financial Code section 22112 requires a California Financing Law licensee to maintain a surety bond in a minimum amount of $25,000, payable to the commissioner and issued by an insurer authorized to do business in California. The bond covers recovery of expenses, fines and fees levied by the commissioner and losses or damages incurred by borrowers or consumers as a result of a licensee's noncompliance. Section 22112(c) lets the commissioner require a higher amount by rule for a licensee that employs mortgage loan originators and makes or arranges residential mortgage loans, and 10 CCR 1437 sets that schedule at $25,000, $50,000, $100,000 or $200,000 based on the aggregate dollar amount of residential mortgage loans originated in the preceding year.

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How to Apply for a Financing Law (CFL) License - NMLS Bond:

• Determine which group you are in. No residential mortgage loans and no mortgage loan originators means a flat $25,000 bond.
• If you originate residential mortgages, total the aggregate dollar amount originated in the preceding year and apply the 10 CCR 1437 schedule.
• Legal entity name exactly as it appears in NMLS and on the license.
• Financial statements prepared under generally accepted accounting principles showing net worth against the applicable 22104 threshold of $25,000, $50,000 or $250,000.
• Owner, officer and control person information, with fingerprints and the criminal history record check.
• Complete the bond application and review the quoted premium.
• Pay the premium and have the surety issue the bond payable to the commissioner, as an electronic surety bond through NMLS or on Exhibit B for a paper filing.
• File the original bond and any riders or endorsements with the commissioner within 10 days of execution.
• Recheck the tier each year against the prior year originations, and calendar March 15 for the annual report.

Detailed Information About the California Financing Law (CFL) License - NMLS Bond:

The tier, and how it is measured

Section 22112(a) states the floor. A licensee shall maintain a surety bond in a minimum amount of twenty-five thousand dollars.

Rule 10 CCR 1437 then splits licensees into two groups. A licensee that does not make residential mortgage loans and does not employ one or more mortgage loan originators posts a surety bond in the amount of $25,000, full stop.

Everything else runs on volume. For a mortgage lender, mortgage broker, or mortgage lender and broker, the bond follows the aggregate dollar amount of residential mortgage loans originated in the preceding year:

• $0 to $1 million, a $25,000 bond
• More than $1 million to $50 million, a $50,000 bond
• More than $50 million to $500 million, a $100,000 bond
• Over $500 million, a $200,000 bond

That is a look back at last year's originations, not a projection and not a snapshot of your current pipeline. Crossing a threshold in one year changes the bond you carry in the next.

One bond, all locations, all originators

Two details in section 22112 save money and are routinely missed.

A licensee with multiple licensed locations files one bond. There is no per branch stacking.

And every mortgage loan originator employed by the licensee is covered by the licensee's surety bond. Sponsored MLOs do not each buy their own instrument under this act.

Filing deadlines that are measured in days

An original surety bond, including all riders and endorsements executed after the effective date of the bond, must be filed with the commissioner within 10 days of execution.

If an action is commenced on the bond, the commissioner may require the licensee to file a replacement. Immediately upon recovery on any action on the bond, the licensee shall file a new bond, and failing to file within 10 days of the recovery or of the commissioner's notification is grounds for suspension or revocation of the license.

Cancellation runs through NMLS. Under 10 CCR 1437, the surety may reduce coverage by amending the effective date or the bond amount, or may cancel the bond thirty days from the date of receipt of notice delivered electronically through NMLS to the principal and the commissioner, and no amendment or cancellation affects liability arising from acts or omissions occurring before the end of that thirty day period.

Net worth is a separate test, with its own tiers

The bond does not satisfy the financial condition requirement, and the net worth tiers do not match the bond tiers.

Section 22104 requires an applicant for a finance lender, broker or program administrator license to file financial statements prepared under generally accepted accounting principles and acceptable to the commissioner showing a net worth of at least $25,000. A finance lender or broker employing mortgage loan originators that makes residential mortgage loans maintains at least $250,000. A finance broker employing mortgage loan originators that arranges but does not make residential mortgage loans maintains at least $50,000.

So a mortgage lender with modest volume can be at a $25,000 bond and a $250,000 net worth requirement at the same time. Those are two different tests answering two different questions.

Who is outside the act

Section 22050 lists the exemptions. Persons doing business under any law of any state or of the United States relating to banks, trust companies, savings and loan associations, credit unions, licensed pawnbrokers acting under that authority and certain development corporations. Licensed check cashers and holders of a valid license under section 23005 acting within that authority. Educational institutions making student loans for degree or certificate programs. Broker-dealers operating under a valid certificate under Corporations Code section 25211. Persons making five or fewer commercial loans in a 12 month period where the loans are incidental to the business of the person. Public corporations, public entities and governmental agencies making loans under applicable federal and state law.

There is no grandfather clause for a lender already operating in California and no small licensee waiver of the bond.

Forms, fees and dates

DFPI publishes an electronic surety bond form for this program, DFPI-802, Electronic Surety Bond California Financing Law. Under 10 CCR 1437 a licensee filing through NMLS uses the electronic surety bond, while a paper filer uses the form provided as Exhibit B to the license application referenced in section 1422.

Section 22103 sets a $100 investigation fee plus the cost of fingerprint processing and the criminal history record check, and a $200 application fee, none of it refundable if the application is denied or withdrawn.

Section 22159 requires each finance lender, broker and program administrator licensee to file an annual report with the commissioner on or before March 15, under oath and in the form the commissioner prescribes, covering the business and operations conducted in California in the previous calendar year for each licensed location. That March 15 report is also where your prior year origination volume gets documented, which is the same number that drives the bond tier.

Eligibility and Requirements for a California Financing Law (CFL) License - NMLS Bond:

• An insurer authorized to do business in California.
• Minimum amount of $25,000, or the higher amount required by 10 CCR 1437 for residential mortgage originations.
• Payable to the Commissioner of Financial Protection and Innovation.
• Covering recovery of expenses, fines and fees levied by the commissioner, and losses or damages incurred by borrowers or consumers from the licensee's noncompliance.
• One bond covering all of the licensee's licensed locations.
• Coverage extending to every mortgage loan originator employed by the licensee.
• Filed with the commissioner within 10 days of execution, including riders and endorsements.
• Electronic surety bond filed through NMLS, or Exhibit B to the license application for a paper filer.
• Financial underwriting of the company alongside the owners' credit.

California Financing Law (CFL) License - NMLS Bond FAQs:

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