Surety Bond Encyclopedia

Residential Mortgage Lender - NMLS Bond - Statewide in California

Brief Summary

Servicing counts. The tier is set by the dollar amount of residential mortgage loans originated or serviced, or both, by you and your mortgage loan originator employees in the preceding year, so a modest originator with a large servicing book can land in the $100,000 or $200,000 band without originating much at all. Add up both sides before anyone quotes you, and remember the bond has to be with the commissioner within 10 days of execution.

Financial Code section 50205 requires a residential mortgage lender or servicer licensee to maintain a surety bond in the amount of $50,000, which may be increased by order of the commissioner to $100,000. The bond is payable to the commissioner, issued by an insurance company authorized to do business in California, and covers recovery of expenses, fines and fees levied by the commissioner along with losses or damages incurred by borrowers or consumers as a result of a licensee's noncompliance. Section 50205 also lets the commissioner require a higher amount by rule for a licensee employing mortgage loan originators, and 10 CCR 1950.205.1 sets that schedule at $50,000, $100,000 or $200,000 based on prior year volume.

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How to Apply for a Residential Mortgage Lender - NMLS Bond:

Add prior year originations and servicing together. The tier follows the dollar amount originated or serviced, or both, by the licensee and its mortgage loan originator employees.
If you have no operating history, prepare a good faith estimate of the aggregate loans anticipated to be originated in the upcoming year.
Legal entity name exactly as it appears in NMLS and on the license.
Financial statements showing minimum tangible net worth of at least $250,000, computed under generally accepted accounting principles.
A copy of the fidelity bond currently in effect for the license application.
Owner, officer and control person information for the surety's underwriting file.
Complete the bond application and review the quoted premium.
Pay the premium and have the surety issue the bond payable to the commissioner on the DFPI CRMLA surety bond form.
File the original bond and any riders or endorsements with the commissioner within 10 days of execution.
Recheck the tier each year against prior year volume, and calendar March 1 for the annual report and the 105 day deadline for the audited financial report.

Detailed Information About the California Residential Mortgage Lender - NMLS Bond:

The tier, and the measure most people get wrong

A residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer that does not employ one or more mortgage loan originators posts a surety bond of $50,000. That is the simple case.

For a licensee that does employ mortgage loan originators, 10 CCR 1950.205.1 scales the bond by the dollar amount of residential mortgage loans originated or serviced, or both, by that licensee and its mortgage loan originator employees in the preceding year:

$0 through $50,000,000, a $50,000 bond
$50,000,001 through $500,000,000, a $100,000 bond
Over $500,000,001, a $200,000 bond

The words originated or serviced, or both, are the part that surprises people. A servicer with a large portfolio does not escape the higher tier just because it originates little. Run both numbers.

A licensee without prior operating history makes a good faith estimate of the aggregate amount of loans anticipated to be originated in the upcoming year to set its initial bond.

There are two separate ways the number can go up outside that schedule. Section 50205 lets the commissioner increase the bond by order from $50,000 to $100,000, and 10 CCR 1950.205.1 permits an increase upon a determination by the commissioner that the licensee is not in compliance with any law, rule or order.

What the bond covers, and who it covers

Section 50205 makes the bond payable to the commissioner and issued by an insurance company authorized to do business in California. It covers recovery of expenses, fines and fees levied by the commissioner, and losses or damages incurred by borrowers or consumers as the result of a licensee's noncompliance with the division. Both regulator exposure and borrower exposure sit behind the same penalty.

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

Deadlines measured in days

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

On the other side, 10 CCR 1950.205 provides that the bond shall not be cancelled in whole or in part without 30 days notice to the commissioner by the bonding or insurance company, and requires the insurer to notify the commissioner within 10 days of service of any action against the bond and immediately upon payment of any claims. Your regulator learns about a claim quickly, which is worth knowing before a dispute escalates.

Three other financial requirements the bond does not touch

This is where CRMLA differs from a simple license bond program.

Net worth. Section 50201 requires a licensee making or servicing residential mortgage loans to continuously maintain a minimum tangible net worth at all times of $250,000, computed under generally accepted accounting principles, with authority for the commissioner to require more for certain activities, capped at the net worth required of an approved lender under the Federal Housing Administration.

Fidelity bond. Section 50122 requires the application to include a copy of the fidelity bond currently in effect. That is a separate instrument from the surety bond, it protects against employee dishonesty rather than regulatory or borrower loss, and buying one does nothing for the other.

Audit. Section 50200 requires an audit at the end of the licensee's fiscal year, and in no case more than 12 months after the last audit, performed by an independent certified public accountant under generally accepted accounting principles and auditing standards, including trust account reconciliation, with the audit report filed with the commissioner within 105 days of the end of the fiscal year.

Who is outside the act

Section 50002(c) exempts a long list, including any bank, trust company, insurance company or industrial loan company authorized by federal or state charter, federally chartered savings and loan associations, federal savings banks and federal credit unions authorized to transact business in California, state chartered savings and loan associations, savings banks and credit unions, persons engaged solely in business, commercial or agricultural mortgage lending, wholly owned service corporations of savings institutions, agencies and instrumentalities of federal, state or municipal government, employee pension plans lending only to participants or employees, persons acting under court conferred fiduciary authority, California licensed real estate brokers making or servicing residential loans, California finance lenders or brokers licensed under Division 9, trustees under deeds of trust collecting delinquent payments or conducting foreclosures, licensed mortgage loan originators employed by lenders or servicers, and originators registered through depository institutions or Farm Credit Administration entities.

Note the Division 9 exemption. A California Financing Law licensee operates under its own bond schedule under Financial Code 22112 and 10 CCR 1437, not this one. Picking the wrong act is the most expensive error available here.

There is no grandfather clause for a lender already operating and no small licensee waiver.

Forms, filings and dates

DFPI publishes a CRMLA surety bond form for this program, and licensing runs through the Nationwide Multistate Licensing System and Registry. Section 50307 requires each residential mortgage lender or servicer licensee to file a report with the commissioner annually, on or before the first day of March, sworn and in the form the commissioner prescribes, containing information the commissioner needs for the calculations under section 50401. The March report and the 105 day audit filing run on different clocks, so track them separately.

Eligibility and Requirements for a California Residential Mortgage Lender - NMLS Bond:

An insurance company authorized to do business in California.
Bond amount of $50,000, $100,000 or $200,000 depending on prior year originated or serviced volume, and subject to increase by order of the commissioner.
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.
Coverage extending to every mortgage loan originator employed by the licensee.
Filed with the commissioner within 10 days of execution, including riders and endorsements.
Not cancellable in whole or in part without 30 days notice to the commissioner from the bonding or insurance company.
Separate minimum tangible net worth of $250,000 maintained continuously under section 50201.
A separate fidelity bond in effect, a copy of which accompanies the license application.

California Residential Mortgage Lender - NMLS Bond FAQs:

Is the bond $50,000 or more?

It depends on volume. A licensee that does not employ mortgage loan originators posts $50,000. A licensee that does employ them follows 10 CCR 1950.205.1, which sets $50,000 for $0 through $50,000,000, $100,000 for $50,000,001 through $500,000,000, and $200,000 for amounts over $500,000,001, measured on the dollar amount of residential mortgage loans originated or serviced, or both, in the preceding year.

Does servicing count toward the tier?

Yes. The regulation measures loans originated or serviced, or both, by the licensee and its mortgage loan originator employees in the preceding year. A servicer with a large book can sit in a higher band than its origination volume alone would suggest.

We are brand new. What amount do we file?

Section 1950.205.1(c) has an applicant without prior operating history make a good faith estimate of the aggregate amount of loans anticipated to be originated in the upcoming year, and the initial bond follows that estimate.

Can DFPI raise my bond outside the schedule?

Two ways. Section 50205 allows the commissioner to increase the bond by order from $50,000 to $100,000. Rule 1950.205.1 also permits an increase upon a determination by the commissioner that the licensee is not in compliance with any law, rule or order.

Do my mortgage loan originators need separate bonds?

No. Section 50205 provides that every mortgage loan originator employed by the licensee shall be covered by the licensee's surety bond.

How fast does the bond have to be filed, and how much notice before cancellation?

An original surety bond, including riders and endorsements, is filed with the commissioner within 10 days of execution. On the other end, 10 CCR 1950.205 bars cancellation in whole or in part without 30 days notice to the commissioner, and requires the insurer to notify the commissioner within 10 days of service of any action against the bond and immediately upon payment of any claims.

Is the fidelity bond the same thing?

No. Section 50122 requires a copy of the fidelity bond currently in effect with the license application. That is a separate instrument covering employee dishonesty. The surety bond under section 50205 answers to the commissioner and to borrowers. Each is required on its own terms.

Does the bond satisfy the net worth requirement?

No. Section 50201 requires a licensee making or servicing residential mortgage loans to continuously maintain minimum tangible net worth of $250,000 at all times, computed under generally accepted accounting principles, with authority for the commissioner to require more, capped at the FHA approved lender requirement.

Who is exempt from the act?

Section 50002(c) exempts banks, trust companies, insurance companies and industrial loan companies, federally and state chartered savings institutions and credit unions, persons engaged solely in business, commercial or agricultural mortgage lending, wholly owned service corporations of savings institutions, government agencies and instrumentalities, employee pension plans lending to participants, court appointed fiduciaries, California licensed real estate brokers making or servicing residential loans, California finance lenders or brokers licensed under Division 9, trustees under deeds of trust collecting delinquent payments or foreclosing, licensed mortgage loan originators employed by lenders or servicers, and registered originators at depository institutions or Farm Credit Administration entities.

What are the reporting deadlines?

Section 50307 requires an annual report to the commissioner on or before the first day of March, sworn and in the prescribed form. Section 50200 separately requires an independent certified public accountant audit at the end of the fiscal year, and in no case more than 12 months after the last audit, with trust account reconciliation, and the audit report filed with the commissioner within 105 days of the end of the fiscal year.

What will the bond cost?

Premium is a percentage of the penal sum, and since the penalty can be $50,000, $100,000 or $200,000, confirming the tier matters more than shopping the rate. Sureties underwrite the company: audited financial statements, tangible net worth against the $250,000 requirement, origination and servicing volume, escrow and trust account controls, examination and enforcement history, and the owners' credit, usually with indemnity. A well capitalized licensee with clean examinations prices at the low end of a surety's filed rates. Thin capital, rapid growth into a higher band, or a prior claim prices higher and can bring collateral into the discussion.