Surety Bond Encyclopedia

Exempt Mortgage Loan Servicer ($250,000) Bond - Statewide in New York

Brief Summary

Before you buy anything, settle which kind of exempt you are. A passive servicer approved under 418.2(e) files the $250,000 corporate surety bond. An FDIC insured depository institution that is at least adequately capitalized is exempt from the surety bond and the net worth test outright under 418.13(a). Same word, opposite outcome. And DFS does not want the bond with the application. It comes after approval, and the exemption does not issue until it lands.

3 NYCRR 418.12(b) requires each mortgage loan servicer registered under Part 418 and each Exempted Person, other than an insured depository institution covered by 418.13, to file with the Superintendent a corporate surety bond in a principal amount of not less than $250,000. The bond is issued by an insurance company licensed by New York and runs in favor of the Superintendent for the protection of consumers. Where DFS determines the servicer has engaged in a pattern of conduct producing bona fide consumer complaints, it may require a bond at twice the amount otherwise required. The bond is one of three financial responsibility items, alongside a net worth test and a fidelity bond with errors and omissions coverage.

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How to Apply for a Exempt Mortgage Loan Servicer ($250,000) Bond:

Confirm your track. An insured depository institution that is at least adequately capitalized is exempt from the surety bond under 418.13(a). Other Exempted Persons file the $250,000 bond.
Consider 418.12(d) if you service less than $4,000,000 in aggregate mortgage loans and collect no money for taxes or insurance.
Confirm the applicant's full legal name as authorized by the New York Secretary of State. The principal insured on the bond must match it exactly.
Assemble what the surety will underwrite: two recent audited annual financial statements and the most recent quarterly, the servicing portfolio breakdown, and principal and ownership information.
Complete the bond application and review the quoted premium.
File the exemption application with the letter of undertaking, contacts, business narrative, organizational chart, financials, the Mortgage Loan Servicer Financial Responsibility Worksheet with notarized signature, fidelity bond and E&O evidence, servicing volume, subservicer information and states of operation.
After DFS approves the application, execute and file the $250,000 corporate surety bond. The exemption does not issue until DFS has it.
Keep fidelity bond and E&O coverage at the 418.12(c) level for your prior year New York volume, with the Superintendent as additional loss payee.

Detailed Information About the New York Exempt Mortgage Loan Servicer ($250,000) Bond:

Two kinds of exempt, and only one of them posts this bond

New York Banking Law 590(2)(b-1) bars anyone from servicing mortgage loans on New York property without registering with the Superintendent, and exempts exempt organizations, mortgage bankers, mortgage brokers, and anyone the Superintendent exempts by regulation. Under 590(2)(b-2) and 3 NYCRR 418.2, an exempt entity still has to notify the Superintendent that it services loans in this State and comply with the regulations that apply to servicers other than the registration rules. That is where the phrase exempt mortgage loan servicer comes from. Exempt from registering, not exempt from Part 418.

From there the paths split.

An Exempted Person that is not an insured depository institution, which includes the passive servicers approved case by case under 418.2(e), files the $250,000 corporate surety bond under 418.12(b), meets the net worth test, and files fidelity bond and E&O coverage.

An institution whose deposits are insured by the FDIC is covered by 418.13 instead. If it is at least adequately capitalized as defined in Section 38 of the Federal Deposit Insurance Act, it is exempt from the net worth and surety bond requirements. It still complies with the fidelity bond and E&O coverage applicable to Exempted Persons, though the Superintendent need not be named as an additional loss payee on those policies. If you are a bank or credit union reading this page because someone quoted you a $250,000 bond, check 418.13 before you sign anything.

$250,000 is a floor, and it can double

Section 418.12(b) sets a principal amount of not less than $250,000. There is no sliding scale by portfolio size on the surety bond itself.

The number moves in one direction. If the Superintendent determines, in his or her sole discretion, that a servicer has engaged in a pattern of conduct resulting in bona fide consumer complaints of misconduct under applicable federal or New York law, the Superintendent may require a surety bond at twice the amount otherwise required. That is $500,000, imposed after the fact on a compliance record, not something you elect at application.

The waiver almost nobody asks about

Section 418.12(d) lets the Superintendent, on application in the form prescribed, reduce, waive, or modify the 418.12 requirements for a person servicing less than $4,000,000 in aggregate amount of mortgage loans who does not collect money for the purpose of paying taxes or insurance on those loans, and in other cases for good cause shown.

Small portfolio plus no escrow handling is the clean fit. Good cause is a discretionary ask, so build the record before filing.

The second and third instruments, which are not optional

The surety bond is not the whole financial responsibility package.

Net worth under 418.12(a) runs at least $250,000 plus one quarter of one percent of the outstanding principal balance of mortgages serviced, with at least ten percent held in cash, cash equivalents, or readily marketable securities. A third party servicer computes it on New York loans.

Fidelity bond and E&O coverage under 418.12(c) is separate from the surety bond and is scaled to volume. The fidelity bond covers losses from fraud, embezzlement, misplacement, forgery and similar events. The E&O coverage answers for negligence in paying real estate taxes, hazard and flood insurance, or maintaining mortgage guaranty insurance. The schedule is $300,000 on aggregate New York loans serviced of $100,000,000 or less, plus 0.15 percent of the next $500,000,000, plus 0.125 percent of the next $400,000,000, plus 0.100 percent of the amount over $1 billion. Those are minimums, the Superintendent is named as an additional loss payee, and coverage is trued up against prior year volume of servicing reports.

Sequencing and the name on the bond

DFS does not want the surety bond with the initial filing. Its passive exemption application resources state that surety bonds are not required to be submitted until the application has been approved, and that the Department will not issue an exemption until the bond has been received. Line up the surety early, then execute on approval.

Get the name exactly right. The name of the principal insured on the bond must match exactly the full legal name of the applicant as authorized by the Secretary of State of New York. An operating name or a slightly different entity suffix means a resubmission and a delay.

Fees and dates

Section 418.6 sends applicants to the fee schedule in effect from time to time, posted on the Department's website, with the underlying authority in Banking Law section 18-a, plus NMLS processing fees and fingerprint processing fees. Those fees are nonrefundable. Filings are generally made through the Nationwide Mortgage Licensing System and Registry where the Superintendent requires it under Banking Law 590.

Part 418 does not set a term, an expiration date, or an annual renewal deadline for a servicer registration or an exemption. The bond is a continuing filing rather than an annual license item, which is exactly why a surety cancellation notice is a bigger event here than in a state with a renewal cycle. Section 418.9 governs revocation, suspension, termination and surrender.

Eligibility and Requirements for a New York Exempt Mortgage Loan Servicer ($250,000) Bond:

A corporate surety bond in a principal amount of not less than $250,000.
Issued by an insurance company licensed by the State of New York.
Running in favor of the Superintendent of Financial Services for the protection of consumers.
Principal insured named exactly as the applicant's full legal name authorized by the New York Secretary of State.
Net worth of at least $250,000 plus one quarter of one percent of the outstanding principal balance of mortgages serviced, at least ten percent in cash, cash equivalents or readily marketable securities.
Fidelity bond and E&O coverage on the 418.12(c) schedule, naming the Superintendent as an additional loss payee.
Financial underwriting of the applicant. At this size the surety reviews audited financials, servicing volume and ownership rather than personal credit alone.

New York Exempt Mortgage Loan Servicer ($250,000) Bond FAQs:

I am exempt from registration. Why am I being asked for a bond?

Because the exemption is from registering, not from Part 418. Banking Law 590(2)(b-2) and 3 NYCRR 418.2 require an exempt entity to notify the Superintendent that it services loans in New York and to comply with the regulations applicable to servicers other than those on registration. Section 418.12(b) applies the $250,000 surety bond to each Exempted Person other than an insured depository institution covered by 418.13.

We are an FDIC insured bank. Do we post it?

No, if you are at least adequately capitalized as defined in Section 38 of the Federal Deposit Insurance Act. Section 418.13(a) exempts such institutions from the net worth and surety bond requirements. You still comply with the fidelity bond and E&O coverage applicable to Exempted Persons, and there the Superintendent need not be named as an additional loss payee.

Is the amount always $250,000?

It is a minimum, not a fixed figure. Section 418.12(b) says not less than $250,000, and where the Superintendent determines in his or her sole discretion that a servicer has engaged in a pattern of conduct resulting in bona fide consumer complaints of misconduct, the Superintendent may require a bond at twice the amount otherwise required.

Can the requirement be waived?

Section 418.12(d) permits the Superintendent, on application in the prescribed form, to reduce, waive or modify the 418.12 requirements for a person servicing less than $4,000,000 in aggregate amount of mortgage loans who does not collect money for the purpose of paying taxes or insurance on those loans, and in other cases for good cause shown.

When do I file the bond?

After approval. The Department's passive exemption application materials state that surety bonds are not required to be submitted until the application has been approved, and that the Department will not issue an exemption until the bond has been received. Have the surety lined up in advance so approval does not sit waiting.

Does the fidelity bond count as the surety bond?

No. They are separate filings under separate subdivisions. The surety bond under 418.12(b) protects consumers and runs to the Superintendent. The fidelity bond and E&O coverage under 418.12(c) cover fraud, embezzlement, misplacement and forgery, and negligence in paying taxes and insurance, at $300,000 on New York loans of $100,000,000 or less, plus 0.15 percent of the next $500,000,000, plus 0.125 percent of the next $400,000,000, plus 0.100 percent above $1 billion.

How long does the exemption last and when do I renew?

Part 418 sets no term, expiration date or annual renewal deadline for a registration or an exemption. The financial responsibility filings are continuing obligations, and 418.9 governs revocation, suspension, termination and surrender. Treat a surety cancellation notice as an urgent matter rather than a renewal issue.

What are the fees?

Section 418.6 directs applicants to the fee schedule in effect from time to time posted on the Department's website, with the authority in Banking Law section 18-a, plus processing fees charged by the Nationwide Mortgage Licensing System and Registry and fingerprint processing fees. All of it is nonrefundable.

What will the bond cost?

Premium is a percentage of the $250,000 penalty, set by the surety after a financial underwriting review rather than a published table. At this class the surety looks at audited financial statements, net worth against the 418.12(a) computation, servicing volume and escrow handling, the quality of subservicer oversight, regulatory history, and ownership. A well capitalized servicer with clean examinations prices at the low end of a surety's filed rates. Thin capital, recent enforcement activity or a complaint pattern prices higher and can draw collateral or indemnity requirements. Nobody can quote it off the bond amount alone.