Pennsylvania Mortgage Consumer Discount Company Bond: A Comprehensive Guide
August 19, 2021
This guide provides information for insurance agents to help their customers obtain Pennsylvania Mortgage Consumer Discount Bonds
At a Glance:
- Average Cost: Between .75%to 5% of the bond amount per year based on the applicant’s credit
- Bond Amount: Based on the amount of mortgage loans originated
Table 1.1
| Mortgage Loans Originated | Bond Amount |
|---|---|
| Less than $30 million | $100,000 |
| $30 million to less than $100 million | $200,000 |
| $100 million to less than $250 million | $300,000 |
| $250 million or more | $500,000 |
- Who Needs it: All consumer discount companies who employ mortgage originators operating in Pennsylvania
- Purpose: To ensure the public will receive compensation for any damages should the mortgage consumer discount company violate licensing law
- Who Regulates Consumer Discount Companies In Pennsylvania: The Pennsylvania Department of Banking and Securities
Background
Pennsylvania statute 6111 requires all consumer discount companies, who employ mortgage originators, operating in the state to obtain a license with the Department of Banking and Securities. The Pennsylvania legislature enacted the licensing laws and regulations to ensure that consumer discount companies engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, mortgage consumer discount companies must purchase and maintain a surety bond to be eligible for licensure.
There are two separate licensing requirements for consumer discount companies in Pennsylvania. Consumer discount companies who do not employ mortgage originators must obtain a consumer discount company license and purchase a $5,000 surety bond (click here for more information). Consumer discount companies who do employ mortgage originators are subject to licensure under the Mortgage Licensing Act and must obtain a mortgage consumer discount company license (in addition to the standard consumer discount company license) and purchase a surety bond with limits outlined in Table 1. This guide focuses solely on the bonding requirements for mortgage consumer discount companies.
What is the Purpose of the Pennsylvania Mortgage Consumer Discount Company Bond?
Pennsylvania requires mortgage consumer discount 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 consumer discount company fails to comply with the regulations set forth in the Pennsylvania Mortgage Licensing Act. Specifically, the bond protects the public in the event the company engages in any acts of fraud or breaches any contracts made with consumers. In short, the bond is a type of insurance that protects the public if the mortgage consumer discount company breaks licensing laws.
How Can an Insurance Agent Obtain a Pennsylvania Mortgage Consumer Discount Company Surety Bond?
BondExchange makes obtaining a Pennsylvania Mortgage Consumer Discount Company 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 Pennsylvania Mortgage Consumer Discount Company Bond?
Surety companies will run a credit check on the owners of the consumer discount company to determine eligibility and pricing for the Pennsylvania Mortgage Consumer Discount Company 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 Pennsylvania Mortgage Consumer Discount Company Bond Cost?
The Pennsylvania Mortgage Consumer Discount Company Bond can cost anywhere between .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 Consumer Discount Company Bond Cost
Table 1.2
| Credit Score | Bond Cost (1 year) |
|---|---|
| 700+ | $750 |
| 650 – 699 | $1,000 |
| 625 – 649 | $1,250 |
| 600 – 624 | $1,500 |
| 550 – 599 | $4,000 |
| 500 – 549 | $5,000 |
How Does Pennsylvania Define “Mortgage Consumer Discount Company?”
To paraphrase Pennsylvania statute 6102, a mortgage consumer discount company is any business entity who makes loans or advances of money on credit of an amount that is $25,000 or less and who employs mortgage originators.
What are the Licensing Requirements for Pennsylvania Mortgage Consumer Discount Companies?
Mortgage consumer discount companies in Pennsylvania must obtain two separate licenses. The first is the standard consumer discount license, which requires a $5,000 surety bond. Consumer discount companies who employ mortgage originators must also obtain a mortgage consumer discount company license in addition to the aforementioned license which they have already obtained.
How Do Mortgage Consumer Discount Companies Apply for a License in Pennsylvania
Mortgage consumer discount companies in Pennsylvania 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 Pennsylvania Mortgage Consumer Discount Company License expires on December 31 of each year and must be renewed before the expiration date
Step 1 – Purchase a Surety Bond
Mortgage consumer discount companies must purchase and maintain a surety bond (limits outlined in Table 1.1)
Step 2 – Meet the Net Worth Requirements
Applicants for the Pennsylvania Mortgage Consumer Discount Company License must have a company net worth (assets – liabilities) of at least $250,000. Applicants must submit company financial statements verifying their net worth when submitting their license application.
Step 3 – Hire a Qualifying Individual
Mortgage consumer discount companies must employ a qualified individual who is capable of handling the day to day operations of the mortgage business. The qualifying individual must be a licensed mortgage originator, or meet the licensing requirements of a mortgage originator, and be employed in a management position.
Step 4 – Obtain a Line of Credit
Mortgage consumer discount companies are required to obtain a line of credit of at least $1 million prior to submitting their license application
Step 5 – Request a NMLS Account
The Pennsylvania Mortgage Consumer Discount Company 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 6 – Complete the Application
All Pennsylvania Mortgage Consumer Discount Company License applications can be completed online through the NMLS. Applicants must complete the entire application, and submit the following items:
-
- Company financial statements indicating a net worth of at least $250,000
- Company business plan containing the following information:
- Marketing strategy
- Products
- Target markets
- Operating structure
- Company formation documents
- Organizational chart detailing the company’s ownership structure
- Tax certification (per control person)
- Summary of the policies and procedures used to process consumer complaints
- The policies and procedures on how the company’s ability to repay analysis will be performed
Mortgage consumer discount companies must pay a $600 fee when submitting their license application.
How Do Pennsylvania Mortgage Consumer Discount Companies Renew Their License?
Mortgage consumer discount companies can renew their license online through the NMLS. License holders need to simply login to their account to access their renewal application. The Pennsylvania Mortgage Consumer Discount Company License expires on December 31 of each year and must be renewed before the expiration date.
What Are the Insurance Requirements for the Pennsylvania Mortgage Consumer Discount Company License?
Pennsylvania does not require mortgage consumer discount companies to purchase any form of liability insurance as a prerequisite to obtaining a business license. Mortgage consumer discount companies must purchase and maintain a surety bond (limits outlined in Table 1.1).
How Do Pennsylvania Mortgage Consumer Discount Companies File Their Bond?
Mortgage consumer discount 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:
- Name, address, and phone number of entity/individual(s) buying the bond
- Surety company’s name, address, and phone number
- Bond amount
- Date the bond goes into effect
- Date the bond is signed
What Can Pennsylvania Mortgage Consumer Discount Companies Do to Avoid Claims Against Their Bond?
To avoid claims on their bond, mortgage consumer discount companies in Pennsylvania must ensure that they 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
- Do not breach any contracts made with consumers
- Pay all required taxes and fees
What Other Insurance Products Can Agents Offer Mortgage Consumer Discount Companies in Pennsylvania?
Pennsylvania does not require mortgage consumer discount companies to purchase any form of liability insurance as a prerequisite to obtaining a business license. However, most reputable businesses will seek to obtain this insurance anyway. 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 Pennsylvania Mortgage Consumer Discount Company Customers?
The NMLS conveniently provides a public database to search for active mortgage consumer discount companies in Pennsylvania. The database can be accessed here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.
