Michigan Mortgage License Bond: A Comprehensive Guide

June 28, 2021

This guide provides information for insurance agents to help their customers obtain Michigan Mortgage 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: Based on the type of mortgage license/registration being applied for

Table 1.1

• Who Needs it: All mortgage brokers, lenders, and servicers operating in Michigan
• Purpose: To ensure the public will receive compensation for any damages should the mortgage company fail to comply with licensing law
• Who Regulates Mortgage Companies in Michigan: The Michigan Department of Insurance and Financial Services

Background

Michigan statute 445.1652 requires all mortgage brokers, lenders, and servicers operating in the state to obtain a license with the Department of Insurance and Financial Services. The Michigan legislature enacted the licensing laws and regulations to ensure that mortgage companies engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law mortgage companies must purchase and maintain a surety bond to be eligible for licensure.

What is the Purpose of the Michigan Mortgage License Bond?

Michigan requires mortgage companies 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 company fails to comply with the regulations set forth in the Michigan Mortgage Brokers, Lenders, and Servicers Licensing Act. Specifically, the bond protects the public in the event the mortgage company engages in any acts of fraud or breaches any consumer contracts. In short, the bond is a type of insurance that protects the public if the mortgage company breaks licensing laws.

How Can an Insurance Agent Obtain a Michigan Mortgage License Surety Bond?

BondExchange makes obtaining a Michigan Mortgage License 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.

Is a Credit Check Required for the Michigan Mortgage License Bond?

Surety companies will run a credit check on the owners of the mortgage company to determine eligibility and pricing for the Michigan Mortgage License 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 Michigan Mortgage License Bond Cost?

The Michigan Mortgage Loan Originator 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 $25,000 bond requirement.

$25,000 Mortgage License Bond Cost

Table 1.2

$125,000 Mortgage License Bond Cost

Table 1.3

Who is Required to Obtain a Mortgage License?

Michigan statute 445.1651a requires all business entities who provide one or more of the following services to obtain a mortgage license:

• Serves or offers to serve as an agent for a person in an attempt to obtain a mortgage loan
• Serves or offers to serve as an agent for a person who makes or offers to make mortgage loans
• Directly or indirectly, makes or offers to make mortgage loans
• Directly or indirectly, services or offers to service mortgage loans

How do Mortgage Brokers, Lenders, and Servicers Apply for a License in Michigan?

Mortgage brokers, lenders, and servicers in Michigan 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 – All Michigan Mortgage Licenses and Registrations expire on December 31 of each year and must be renewed before the expiration date

Step 1 – Determine the License/Registration Type

Michigan requires mortgage companies to obtain specific licenses and registrations corresponding to the type of services provided. Below are the different types of the Michigan Mortgage License:

• • 1st Mortgage Broker and Lender License: Required for companies who act as both brokers and lenders when making 1st mortgage loans
  • 1st Mortgage Broker and Lender Registration: Provides the same services as the above license but is approved as a seller or servicer by FHLMC or FNMA, an issuer or servicer approved by GNMA, or is a subsidiary or affiliate of a depository financial institution
  • 1st Mortgage Broker License: Required for companies who act solely as brokers when making 1st mortgage loans
  • 1st Mortgage Broker Registration: Provides the same services as the above license but is approved as a seller or servicer by FHLMC or FNMA, an issuer or servicer approved by GNMA, or is a subsidiary or affiliate of a depository financial institution
  • 1st Mortgage Broker, Lender Servicer License: Required for companies who act as  brokers, lenders, and servicers when making 1st mortgage loans
  • 1st Mortgage Broker, Lender Servicer Registration: Provides the same services as the above license but is approved as a seller or servicer by FHLMC or FNMA, an issuer or servicer approved by GNMA, or is a subsidiary or affiliate of a depository financial institution

• • 2nd Mortgage Broker and Lender License: Required for companies who act as both brokers and lenders when making subordinate mortgage loans
  • 2nd Mortgage Broker and Lender Registration: Provides the same services as the above license but is approved as a seller or servicer by FHLMC or FNMA, an issuer or servicer approved by GNMA, or is a subsidiary or affiliate of a depository financial institution
  • 2nd Mortgage Broker License: Required for companies who act solely as brokers when making subordinate mortgage loans
  • 2nd Mortgage Broker Registration: Provides the same services as the above license but is approved as a seller or servicer by FHLMC or FNMA, an issuer or servicer approved by GNMA, or is a subsidiary or affiliate of a depository financial institution
  • 2nd Mortgage Broker, Lender, and Servicer License: Required for companies who act as  brokers, lenders, and servicers when making subordinate mortgage loans
  • 2nd Mortgage Broker, Lender, and Servicer Registration: Provides the same services as the above license but is approved as a seller or servicer by FHLMC or FNMA, an issuer or servicer approved by GNMA, or is a subsidiary or affiliate of a depository financial institution

Step 2 – Purchase a Surety Bond

Mortgage companies must purchase and maintain a surety bond (limits outlined in Table 1.1)

Step 3 – Meet the Net Worth Requirements (License Applicants Only)

Applicants for a Michigan Mortgage Company License must have a company net worth (assets – liabilities) of at least the following amount:

• • $25,000 for all mortgage brokers and lenders
  • $100,000 for mortgage servicers

Applicants must submit an audited financial statement, prepared by a CPA, verifying their net worth when submitting their license application.

Step 4 – Request a NMLS Account

All Michigan Mortgage License applications are 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 Michigan Mortgage License applications can be completed online through the NMLS. Applicants must complete the entire application, and pay the required fees.

How Do Michigan Mortgage Companies Renew Their License/Registration?

Mortgage companies can renew their license/registration online through the NMLS. Applicants need to simply login to their account to access their renewal application. All Michigan Mortgage Licenses and Registrations expire on December 31 of each year and must be renewed before the expiration date.

What Are the Insurance Requirements for Michigan Mortgage Companies?

The State of Michigan does not require mortgage companies to obtain any form of liability insurance as a prerequisite to obtaining a business license/registration. Mortgage companies must purchase and maintain a surety bond (limits outlined in Table 1.1).

How Do Michigan Mortgage Companies File Their Bond?

Mortgage companies 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 company. The surety company should include the following information on the bond form:

• Legal name and NMLS number of entity/individual(s) buying the bond
• Surety company’s name
• Bond amount
• Date the bond goes into effect

What Can Michigan Mortgage Companies Do to Avoid Claims Against Their Bond?

To avoid claims on their bond, mortgage companies in Michigan 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 contractual obligations with consumers
• Pay all required taxes and fees

What Other Insurance Products Can Agents Offer Mortgage Companies in Michigan?

Michigan does not require mortgage companies 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 Michigan Mortgage Company Customers?

The NMLS conveniently provides a public database to search for active mortgage companies in Michigan. The database can be accessed here. Contact BondExchange for help developing a marketing piece. Agents can also leverage our print-mail relationships for discounted mailing services.