California Residential Mortgage Lender Bond: A Comprehensive Guide

March 19, 2021

This guide provides information for insurance agents to help residential mortgage lenders and servicers obtain California Residential Mortgage Lender Bonds

At a Glance:

• Average Cost: Between $375 to $2,500 per year based on the lender and/or servicer’s credit
• Bond Amount: $50,000
• Who Needs It: All residential mortgage lenders and servicers seeking to obtain a license in the State of California
• Purpose: To ensure the public will receive compensation for any damages should the mortgage lender/servicer fail to comply with licensing law
• Who Regulates Residential Mortgage Lenders and Servicers in California: The California Department of Financial Protection and Innovation

Background

California Statute 50002 requires all residential mortgage lenders and servicers operating in the state to obtain a license with the Department of Financial Protection and Innovation. The California legislature enacted the licensing laws and regulations to ensure that mortgage lenders and servicers engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, mortgage lenders and servicers must purchase and maintain a $50,000 residential mortgage lender surety bond to be eligible for licensure.

What is the Purpose of the California Residential Mortgage Lender Bond?

California requires residential mortgage lenders and servicers to purchase the residential mortgage lender 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 lender/servicer fails to comply with the licensing regulations. In short, the bond is a type of insurance that protects the public if the mortgage lender/servicer breaks licensing laws.

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

BondExchange makes obtaining a California Residential 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.

Is a Credit Check Required for the California Residential Mortgage Lender Bond?

Surety companies will run a credit check on the mortgage lender/servicer to determine eligibility and pricing for the California Residential Mortgage Lender bond. Lenders with excellent credit and work experience can expect to receive the best rates. Lenders 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 lender’s credit.

How Much Does the California Residential Mortgage Lender Bond Cost?

The California Residential Mortgage Lender surety bond can cost anywhere between $375 to $2,500 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 $50,000 bond requirement.

$50,000 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 California Define “Mortgage Lender”?

California Statute 50003 defines a mortgage lender as any person who has government authorization to engage in the following business practices:

• Directly makes residential mortgage loans
• Makes the credit decisions in loan transactions

How does California Define “Mortgage Servicer”?

California Statute 50003 defines a mortgage servicer as any person who services mortgage loans either directly or indirectly

What are the Different Types of the California Mortgage Lender License?

The California Department of Financial Protection and Innovation requires both individuals and companies to obtain a mortgage lender license. Only the mortgage lending company is required to purchase the $50,000 surety bond, but individual mortgage lenders must obtain sponshorship from a bonded company prior to obtaining their license. Since individual mortgage lenders and/or servicers are not required to purchase a surety bond, we won’t go into their licensing process. However, individual mortgage lenders/servicers can view the application requirements here. Insurance agents can learn how to obtain a company license in the following section.

How do Mortgage Lending/Servicing Companies Apply for a License in California?

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

License Period – The California Mortgage Lender License expires on January 1 of each year and must be renewed before the expiration date

Step 1 – Meet the Net Worth Requirements

Applicants for the California Mortgage Lender Company License must amass a net worth (assets – liabilities) of at least $250,000. Applicants must submit audited financial statements, prepared by a CPA, verifying their net worth when submitting their license application.

Step 2 – Purchase a Surety Bond

Mortgage lenders and servicers must purchase and maintain a $50,000 residential mortgage lender surety bond

Step 3 – Request a NMLS Account

The California Mortgage Lender/Servicer 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 4 – Complete the Application

All California Mortgage Lender/Servicer License applications can be completed online through the NMLS. Completed applications will include the following items:

• • Audited financial statements indicating a company net worth of at least $250,000
  • Information regarding the designate qualified individual responsible for overseeing all company branch managers
  • The company’s independently reviewed AML/BSA policy
  • A company business plan containing the following information:
    • The type of license applied for – CRMLA lender, servicer or lender and servicer – stated clearly at the top of the business plan
    • Describe in sufficient detail the business to be conducted by the applicant under this license
    • Operating structure applicant intends to employ
    • Marketing strategies
    • Products/Services
    • Target markets
    • Credit decision
    • Flow of funds structure
    • Loan processing/underwriting
    • Sale of loan
    • Affiliate and/or subsidiary relationships
    • Sub-servicer contract
  • Certificate of Good Standing issued by the California Secretary of State
  • Proof of approval from a federal agency to conduct business
  • Company formation documents
  • A management chart detailing the leadership hierarchy of the company
  • An ownership chart detailing the ownership structure of the company
  • Statements confirming company compliance with the following requirements:
    • CA-HBOR
    • Per diem interest requirements
    • Trust accounting requirements
    • 12 CFR 1024.38(b)(3) 3
    • 12 CFR 1024.38(b)(4) 4
  • Statement confirming the company’s consumer complaint procedures

Applicants must pay the following fees when submitting their license application:

• • $100 investigation fee
  • $900 application fee
  • $100 processing fee

How Do California Mortgage Lenders/Servicers Renew Their License?

Mortgage lenders and servicers can renew their license online through the NMLS. License holders need to simply login to their account to access their renewal application. The California Mortgage Lender License expires on January 1 of each year and must be renewed before the expiration date.

What Are the Insurance Requirements for the California Mortgage Lender/Servicer License?

The State of California does not require mortgage lenders and servicers to obtain any form of liability insurance as a prerequisite to obtaining a Mortgage Lender/Servicer License. Lenders and services must purchase and maintain a $25,000 mortgage lender surety bond.

How Do California Mortgage Lenders/Servicers File Their Bond?

Mortgage lenders and servicers should submit the completed bond form, including the power of attorney, electronically through the NMLS. The residential mortgage lender surety bond requires signatures from both the surety company that issues the bond and the mortgage lender/servicer. 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, state of incorporation, and address
• Bond amount
• Date the bond goes into effect

What Can Mortgage Lenders and Servicers Do to Avoid Claims Against the California Residential Mortgage Lender Bond?

To avoid claims on the Residential Mortgage Lender Bond, lenders and servicers must follow all license regulations in the state, including some of the most important issues below that tend to cause claims:

• Do not engage, or allow representatives of the business to engage, in any acts of fraud
• Pay all taxes and fees on time and in full

What Other Insurance Products Can Agents Offer Mortgage Lenders/Servicers in California?

California does not require mortgage lenders and servicers to obtain any form of liability insurance. 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 California Mortgage Lender/Servicer Customers?

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