Massachusetts Exempt Entity Bond: A Comprehensive Guide
May 25, 2021
This guide provides information for insurance agents to help their customers obtain Massachusetts Exempt Entity 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 aggregate annual amount of residential mortgage loans closed
| Total Loand Closed | Bond Amount |
|---|---|
| $250 million or more | $500,000 |
| $50 million to less than $250 million | $250,000 |
| Less than $50 million | $100,000 |
- Who Needs it: Massachusetts companies who employ licensed mortgage loan originators but are exempt from licensing requirements themselves
- Purpose: To ensure the public will receive compensation for any damages should the company’s mortgage loan originator employees fail to comply with licensing law
- Who Regulates Exempt Companies in Massachusetts: The Massachusetts Division of Banks
Background
Massachusetts general law 255E requires companies who employ mortgage loan originators but are not subject to licensing requirements themselves, to ensure their MLO employees have surety bond coverage. The statute grants exempt companies two options to ensure they are in compliance with the law:
- Require all of their MLO employees to purchase an individual surety bond
- Purchase one corporate surety bond that covers all MLO employees
Companies that choose the latter option must submit a registration application through the Nationwide Multistate Licensing System (NMLS) in addition to purchasing a surety bond.
What is the Purpose of the Massachusetts Exempt Entity Bond?
Massachusetts requires exempt mortgage companies to purchase a surety bond as part of the application process to register with the Division of Banks. The bond ensures that the public will receive compensation for financial harm if the company’s MLO employees fail to comply with the licensing regulations set forth in Massachusetts general law 255F. Specifically, the bond protects the public in the event the check seller 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 company’s MLO employees break licensing laws.
How Can an Insurance Agent Obtain a Massachusetts Exempt Entity Surety Bond?
BondExchange makes obtaining a Massachusetts Exempt Entity Bond easy. Simply login to your account and use our keyword search to find the “exempt” 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 Massachusetts Exempt Entity Bond?
Surety companies will run a credit check on the owners of the mortgage company to determine eligibility and pricing for the Massachusetts Exempt Entity bond. Owner’s 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 Exempt Entity Bond Cost?
The Massachusetts Exempt Entity 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 Exempt Entity Bond Cost
| Credit Score | Bond Cost (1 year) |
|---|---|
| 700+ | $750 |
| 650 – 699 | $1,000 |
| 625 – 649 | $1,250 |
| 600 – 624 | $1,500 |
| 550 – 599 | $3,000 |
| 500 – 549 | $5,000 |
*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 Company?”
Massachusetts general law 255E s. 1 defines a mortgage company as any business entity performs one or more of the following services:
- Negotiates, places, assists in placement, finds or offers to negotiate, place, assist in placement or find mortgage loans on residential property for others (mortgage broker)
- Makes mortgage loans, or issues commitments for mortgage loans (mortgage lender)
Who is Exempt From the Licensing Requirements?
Massachusetts general law 255E s. 2 states that any companies who perform one or more of the above services must obtain either a mortgage broker or lender license. However, the following companies are exempt from the licensing requirements and instead must ensure their MLO employees are covered under a surety bond:
- Companies who make fewer than 5 residential mortgage loans in a 12 month consecutive period
- Companies who act as a mortgage broker fewer than 5 times in a 12 month consecutive period
- Banks, national banking associations, federally chartered credit unions, federally chartered savings and loan associations,
- Insurance companies
- Real estate brokers and salespersons
- Educational institutions who make 12 or fewer residential mortgage loans a year
Do Exempt Companies Need to Register With the Division of Banks?
No, as mentioned above, exempt companies do not need to register with the Division of Banks if they choose to require their MLO employees to purchase individual surety bonds. Exempt companies only have to obtain a registration if they elect to purchase one corporate surety bond covering all of their MLO employees.
How do Exempt Companies Apply for Registration in Massachusetts?
Exempt companies in Massachusetts must navigate several steps to secure their registration. Below are the general guidelines, but applicants should refer to the NMLS’s application guidelines for details on the process.
Registration Period – The Massachusetts Exempt Company Registration expires on December 31 of each year and must be renewed before the expiration date
Step 1 – Purchase a Surety Bond
Exempt companies applying for registration must purchase and maintain a surety bond (limits outlined above)
Step 2 – Request a NMLS Account
The Massachusetts Exempt Company Registration 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 3 – Complete the Application
All Massachusetts Exempt Company Registration applications can be completed online through the NMLS. Applicants must complete the entire application, and submit the following items:
-
- Primary company and consumer complaint contact information
- Company business plan containing the following information:
- Whether the applicant intends to hold, broker, or sell loans and to whom
- Briefly describe all financial products and services available to customers through the applicant
- Company formation documents
- Reason the company is exempt from licensure
Exempt entities must pay a $100 processing fee when submitting their registration application
How Do Massachusetts Exempt Companies Renew Their Registration?
Exempt companies can renew their registration online through the NMLS. Registration holders need to simply login to their account to access their renewal application. The Massachusetts Exempt Company Registration expires on December 31 of each year and must be renewed before the expiration date.
What Are the Insurance Requirements for the Massachusetts Exempt Company Registration?
The State of Massachusetts does not require exempt companies to obtain any form of liability insurance as a prerequisite to obtaining a registration. Exempt companies applying for registration must purchase and maintain a surety bond (limits outlined above).
How Do Massachusetts Exempt Companies File Their Bond?
Exempt 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 exempt 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 and NAIC
- Bond amount
- Date the bond is signed
What Can Massachusetts Exempt Companies Do to Avoid Claims Against Their Bond?
To avoid claims on their bond, exempt companies in Massachusetts must ensure their MLO employees 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 Exempt Companies in Massachusetts?
Massachusetts does not require exempt entities to purchase any form of liability insurance as a prerequisite to obtaining a registration. 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 Exempt Entity Customers?
The NMLS conveniently provides a public database to search for active exempt entities in Massachusetts. 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.
