New York Mortgage Loan Servicer Bond: A Comprehensive Guide

August 4, 2021

Mortgage loan services in New York are required to purchase both a business registration bond and a fidelity bond. This article focuses on the business registration bond, for help obtaining the required fidelity bond contact BondExchange

At a Glance:

• Average Cost: Between 0.75% to 5% of the bond amount per year based on the applicant’s credit
• Bond Amount: 
  • Minimum of $250,000 for the business registration bond (more on this later)
  • $300,000 for the fidelity bond
• Who Needs it: All mortgage loan servicers operating in New York
• Purpose: To ensure the public will receive compensation for any damages should the mortgage loan servicer violate registration law
• Who Regulates Mortgage Loan Servicers In New York: The New York Department of Financial Services

Background

New York statute 418.2 requires all mortgage loan servicers operating in the state to obtain a registration with the Department of Financial Services. The New York legislature enacted the registration laws and regulations to ensure that mortgage loan servicers engage in ethical business practices. In order to provide financial security for the enforcement of the registration law, mortgage loan servicers must purchase and maintain both a business registration and fidelity surety bond to be eligible for registration.

What is the Purpose of the New York Mortgage Loan Servicer Bond?

New York requires mortgage loan servicers to purchase a surety bond as part of the application process to obtain a business registration. The bond ensures that the public will receive compensation for financial harm if the mortgage loan servicer fails to comply with the regulations set forth in New York Banking Code article 12-D. Specifically, the bond protects the public in the event the mortgage loan servicer engages in any acts of fraud or charges unearned fees. In short, the bond is a type of insurance that protects the public if the mortgage loan servicer breaks registration laws.

How Can an Insurance Agent Obtain a New York Mortgage Loan Servicer Surety Bond?

BondExchange makes obtaining a New York Mortgage Loan Servicer 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?

New York statute 418.12 dictates that the limit on the mortgage loan servicer bond be a minimum of $250,000. The statute also grants the Department of Financial Services the authority to increase the bond limit to a maximum of $500,000 if the mortgage loan servicer accrues significant consumer complaints or engages in any misconduct relating to their registration.

Is a Credit Check Required for the New York Mortgage Loan Servicer Bond?

Surety companies will run a credit check on the owners of the loan servicing company to determine eligibility and pricing for the New York Mortgage Loan Servicer 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 New York Mortgage Loan Servicer Bond Cost?

The New York Mortgage Loan Servicer 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 $250,000 bond requirement.

$250,000 Mortgage Loan Servicer Bond Cost

How Does New York Define “Mortgage Loan Servicer?”

New York statute 418.3 defines a mortgage loan servicer as any business entity who receives periodic mortgage payments from a borrower and disburses these payments to the owners of the loan or any other third parties.

How do Mortgage Loan Servicers Apply For a Registration in New York?

Mortgage loan servicers in New York 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 New York Mortgage Loan Servicer Registration expires on December 31 of each year and must be renewed before the expiration date

Step 1 – Obtain Surety Bond Coverage

Mortgage loan servicers must purchase and maintain both a $250,000 business registration bond and a $300,000 fidelity bond

Step 2 – Meet the Net Worth Requirements

Applicants for the mortgage loan servicer registration must maintain a minimum company net worth (assets – liabilities) of at least $250,000 plus an additional sum based on the types of loans serviced:

• • 0.25 of 1% of the outstanding principal balance of aggregate mortgages serviced, in any location, for companies that perform servicing only
  • 0.25 of 1% of the outstanding principal balance of aggregate New York mortgages serviced for third-party servicers
  • 0.25 of 1%  of the outstanding principal balance for both non-third party and New York mortgage loans for both first and third party servicers

Mortgage loan servicers must submit financial statements verifying their net worth with their registration application.

Step 3 – Purchase Insurance

Mortgage loan servicers must purchase $300,000 worth of Errors and Omissions insurance coverage as well as workers’ compensation insurance

Step 4 – Hire a Qualifying Individual

Mortgage loan servicers must employ a qualifying individual who is capable of handling the day to day operations of the loan servicing company. The qualifying individual must have a minimum of five years industry experience and be in a managerial position.

Step 5 – Request a NMLS Account

The New York Mortgage Loan Servicer Registration application is submitted electronically through the Nationwide Multistate Licensing System (NMLS). To submit a registration application, applicants must first request to obtain an NMLS account.

Step 6 – Complete the Application

All New York Mortgage Loan Servicer registration applications can be completed online through the NMLS. Applicants must complete the entire application, and submit the following items:

• • Financial statements verifying the company’s net worth
  • Personal financial statements and personal questionnaires for all control persons and the three most senior executive officers
  • Company formation documents
  • Letter of assurance, on the company’s letterhead, stating the company will maintain the net worth requirements
  • Resumes and litigation affidavits for the company’s qualifying individual and the three most senior executive officers
  • Certification and affirmation form signed by the three most senior company officers
  • Corporate resolution
  • Disclosure questions
  • Company business plan
  • Summary of the company’s compliance method
  • Management and organizational charts
  • Certificate of Compliance
  • Report containing the company’s aggregate servicing volume
  • Summary of the company’s loss mitigation strategy
  • Leases for all company locations
  • Word approval authorization certificate
  • Website questionnaire

Mortgage loan servicers must pay the following fees when submitting their application:

• • $3,000 investigation fee
  • $100 NMLS processing fee
  • $99 fingerprint processing fee (per control person)
  • $15 credit report fee (per control person)

How Do New York Mortgage Loan Servicers Renew Their Registration?

Mortgage loan servicers can renew their registration online through the NMLS. Registration holders need to simply login to their account to access their renewal application. The New York Mortgage Loan Servicer Registration expires on December 31 of each year and must be renewed before the expiration date.

What Are the Insurance Requirements for the New York Mortgage Loan Servicer Registration?

New York requires mortgage loan servicers to purchase $300,000 worth of errors and omissions coverage as well as workers’ compensation insurance as a prerequisite to obtaining a business registration. Mortgage loan servicers must purchase and maintain both a $250,000 business registration bond and a $300,000 fidelity bond.

How Do New York Mortgage Loan Servicers File Their Bond?

Mortgage loan servicers 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:

• Name and location of entity/individual(s) buying the bond
• Surety company’s name and location
• Bond amount
• Date the bond goes into effect
• Date the bond is signed

What Can New York Mortgage Loan Servicers Do to Avoid Claims Against Their Bond?

To avoid claims on their bond, mortgage loan servicers in New York must ensure that they follow all registration 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
• Do not breach any contracts made with consumers
• Do not charge exorbitant fees

What Other Insurance Products Can Agents Offer Mortgage Loan Servicers in New York?

New York requires mortgage loan servicers to purchase errors and omissions and worker’s compensation insurance. Bonds are our only business at BondExchange, so we do not issue other types of 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 Mortgage Loan Servicer Customers?

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