Massachusetts Mortgage Lender Bond: A Comprehensive Guide

May 27, 2021

This guide provides information for insurance agents to help their customers obtain Massachusetts Mortgage Lender Bonds

At a Glance:

• Average Cost: Between 0.75% to 5% of the bond amount per year based on the applicant’s credit
• Bond Amount: Between $100,000 to $500,000 (more on this later)
• Who Needs it: All mortgage lenders operating in Massachusetts
• Purpose: To ensure the public will receive compensation for any damages should the mortgage lender fail to comply with licensing law
• Who Regulates Mortgage Companies in Massachusetts: The Massachusetts Division of Banks

Background

Massachusetts general law 255E s. 2 requires all mortgage lenders operating in the state to obtain a license with the Division of Banks. The Massachusetts legislature enacted the licensing laws and regulations to ensure that mortgage lenders engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, mortgage lenders must purchase and maintain a $100,000 surety bond to be eligible for licensure.

What is the Purpose of the Massachusetts Mortgage Lender Bond?

Massachusetts requires mortgage lenders to purchase a surety bond as part of the application process to obtain a business license. The bond ensures that the public will receive compensation for financial harm if the mortgage lender fails to comply with the licensing regulations set forth in Massachusetts general law 255E. Specifically, the bond protects the public in the event the mortgage lender engages in any acts of fraud or fails to honor agreements made with consumers. In short, the bond is a type of insurance that protects the public if the mortgage lender breaks licensing laws.

How Can an Insurance Agent Obtain a Massachusetts Mortgage Lender Surety Bond?

BondExchange makes obtaining a Massachusetts Mortgage Lender Bond easy. Simply login to your account and use our keyword search to find the “mortgage” bond in our database. Don’t have a login? Enroll now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone (800) 438-1162, email or chat from 7:30 AM to 7:00 PM EST to assist you.

At BondExchange, our 40 years of experience, leading technology, and access to markets ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.

How is the Bond Amount Determined?

Massachusetts general law 42.03 dictates that the limit on the Mortgage Lender Bond not be less than $100,000. The statute also grants the Commissioner of the Division of Banks the authority to increase the bond amount, on a case by case basis, to a maximum of $500,000. The commissioner will examine the total amount of loans originated by the lender when determining whether to increase or decrease the bond amount.

Is a Credit Check Required for the Massachusetts Mortgage Lender Bond?

Surety companies will run a credit check on the owner’s of the mortgage lending company to determine eligibility and pricing for the Massachusetts Mortgage Lender bond. Owners with excellent credit and work experience can expect to receive the best rates. Owners with poor credit may be declined by some surety companies or pay higher rates. The credit check is a “soft hit”, meaning that the credit check will not affect the owner’s credit.

How Much Does the Massachusetts Mortgage Lender Bond Cost?

The Massachusetts Mortgage Lender surety bond can cost anywhere between 0.75% to 5% of the bond amount per year. Insurance companies determine the rate based on a number of factors including your customer’s credit score and experience. The chart below offers a quick reference for the approximate bond cost on a $100,000 bond requirement.

$100,000 Mortgage Lender Bond Cost

*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.

How Does Massachusetts Define “Mortgage Lender?”

Massachusetts general law 255E s. 1 defines a mortgage lender as any individual or business entity who makes mortgage loans, or issues commitments for mortgage loans

How do Mortgage Lenders Apply for a License in Massachusetts?

Mortgage lenders in Massachusetts must navigate several steps to secure their license. Below are the general guidelines, but applicants should refer to the NMLS’s application guidelines for details on the process.

License Period – The Massachusetts Mortgage Lender License expires on December 31 of each year and must be renewed before the expiration date

Step 1 – Meet the Net Worth Requirements

Applicants for the Massachusetts Mortgage Lender License must have a company net worth (assets – liabilities) of at least $200,000. Applicants must submit an audited financial statement, prepared by a CPA, verifying their net worth when submitting their license application.

Step 2 – Purchase a Surety Bond

Mortgage lenders must purchase and maintain a surety bond with a minimum limit of $100,000 (see the above section for more information on the required bond amount)

Step 3 – Hire a Qualifying Individual

Applicants for the Massachusetts Mortgage Lender License must employ a qualified individual who is capable of managing the day to day operations of the mortgage lending business. Applicants must hire a qualified individual for each branch location where the company services Massachusetts consumers.

Step 4 – Request a NMLS Account

The Massachusetts Mortgage Lender License application is submitted electronically through the Nationwide Multistate Licensing System (NMLS). To submit a license application, applicants must first request to obtain an NMLS account.

Step 5 – Complete the Application

All Massachusetts Mortgage Lender License applications can be completed online through the NMLS. Applicants must complete the entire application, and submit the following items:

• • Audited financial statements indicating a company net worth of at least $200,000
  • The following company contact information:
    • Primary company contact
    • Primary consumer complaint
    • Accounting
    • Exam Billing
    • Licensing
    • Consumer Complaint (Public) Exam Delivery
    •  Litigation
    • Consumer Complaint (Regulator)
    • Legal
    • Pre-Exam Contact
  • Comprehensive list of all company lines of credit
  • Location where company keeps all books and records
  • Company’s independently reviewed AML policy
  • Company business plan containing the following information:
    • Marketing strategies
    • Products
    • Target markets
    • Fee schedule
    • Operating structure the applicant intends to employ
    • Operational policies and procedures
    • The credit market(s) intended to be addressed in Massachusetts (i.e., A, B, C, D, paper)
    • Proposed rates and fees to be charged in Massachusetts; and marketing strategies
    • Record Retention Policy
  • Certificate of Good Standing
  • Company formation documents
  • Management chart detailing the company’s hierarchy
  • Organizational chart detailing the company’s ownership structure

The following items must be emailed to nmls@mass.gov:

• • Financial statements for all company owners with an ownership stake of 10% or more
  • W-9 Form
  • Third party verification that the company’s control person has the required five years of experience

Mortgage lenders must pay the following fees when submitting their license application:

• • $1,100 license fee
  • $300 investigation fee
  • $100 NMLS processing fee
  • $36.25 background check fee (per person)
  • $15 credit report fee (per person)

How Do Massachusetts Mortgage Lenders Renew Their License?

Mortgage lenders can renew their license online through the NMLS. License holders need to simply login to their account to access their renewal application. The Massachusetts Mortgage Lender License expires on December 31 of each year and must be renewed before the expiration date.

What Are the Insurance Requirements for the Massachusetts Mortgage Lender License?

The State of Massachusetts does not require mortgage lenders to obtain any form of liability insurance as a prerequisite to obtaining a business license. Mortgage lenders must purchase and maintain a surety bond with a minimum limit of $100,000 (see the above section for more information on the required bond amount).

How Do Massachusetts Mortgage Lenders File Their Bond?

Mortgage lenders should submit the completed bond form, including the power of attorney, electronically through the NMLS. The surety bond requires signatures from both the surety company that issues the bond and a representative from the mortgage lending company. The surety company should include the following information on the bond form:

• Legal name and address of entity/individual(s) buying the bond
• Surety company’s name and state of incorporation
• Bond amount
• Date the bond is signed

What Can Massachusetts Mortgage Lenders Do to Avoid Claims Against Their Bond?

To avoid claims on their bond, mortgage lenders in Massachusetts must follow all license regulations in the state, including some of the most important issues below that tend to cause claims:

• Do not engage in any acts of fraud
• Honor all agreements made with consumers

What Other Insurance Products Can Agents Offer Mortgage Lenders in Massachusetts?

Massachusetts does not require mortgage lenders to purchase any form of liability insurance as a prerequisite to obtaining a license. However, most reputable businesses will seek to obtain this insurance anyway. Bonds are our only business at BondExchange, so we do not issue liability insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.

How Can Insurance Agents Prospect for Massachusetts Mortgage Lender Customers?

The NMLS conveniently provides a public database to search for active mortgage lenders in Massachusetts. The database can be accessed here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.