Vermont Loan Servicer Bond: A Comprehensive Guide

September 1, 2021

This guide provides information for insurance agents to help their customers obtain Vermont Loan Servicer 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: $100,000
• Who Needs it: All loan servicers operating in Vermont
• Purpose: To ensure the public will receive compensation for any damages should the loan servicer fail to comply with licensing law
• Who Regulates Loan Servicers In Vermont: The Vermont Department of Financial Regulation

Background

Vermont general law 8 V.S.A. § 2901 requires all loan servicers operating in the state to obtain a license with the Department of Financial Regulation. The Vermont legislature enacted the licensing laws and regulations to ensure that loan servicers engage in ethical business practices. To provide financial security for the enforcement of the licensing law, loan servicers must purchase and maintain a $100,000 surety bond to be eligible for licensure.

What is the Purpose of the Vermont Loan Servicer Bond?

Vermont requires loan servicers 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 loan servicer fails to comply with the licensing regulations outlined in Vermont general law Title 8 Chapter 85. Specifically, the bond protects the public in the event the loan servicer 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 loan servicer breaks licensing laws.

How Can an Insurance Agent Obtain a Vermont Loan Servicer Surety Bond?

BondExchange makes obtaining a Vermont Loan Servicer Bond easy. Simply login to your account and use our keyword search to find the “loan” 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?

Vermont general law 8 V.S.A. § 2903 dictates that the limit on the Loan Servicer Bond be a minimum of $100,000. The statute also grants the Commissioner of Financial Regulation the authority to increase the bond amount on a case by case basis if they see fit.

Is a Credit Check Required for the Vermont 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 Vermont 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 Vermont Loan Servicer Bond Cost?

The Vermont Loan Servicer Surety Bond can cost anywhere between $750 to $5,000 per year. Insurance companies determine the rate based on several factors including your customer’s credit score and experience. The chart below offers a quick reference for the approximate bond cost on the $100,000 bond requirement.

$100,000 Loan Servicer 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 Vermont Define “Loan Servicer?”

Vermont statute 2900 defines a loan servicer as any business entity who receives periodic payments from a borrower and distributes these funds to the owner of the borrower’s loan

What Activities are Authorized Under the Vermont Loan Servicer License?

The Vermont Loan Servicer License authorizes the following activities as outlined on the NMLS’s business activities definitions chart:

• First mortgage servicing
• Third-party first mortgage servicing
• Subordinate lien mortgage servicing
• Third-party subordinate lien mortgage servicing
• Master servicing
• Short sale
• Mortgage loan modifications

How do Loan Servicers Apply for a License in Vermont?

Loan servicers in Vermont 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 Vermont Loan Servicer License expires on December 31 of each year and must be renewed before the expiration date

Step 1 – Purchase a Surety Bond

Loan Servicers must purchase and maintain a $100,000 surety bond

Step 2 – Hire a Qualifying Individual

Applicants for the Vermont Loan Servicer License must employ a qualified individual who is capable of managing the day-to-day operations of the business. The qualifying individual must be employed in a management positions.

Step 3 – Request an NMLS Account

The Vermont Loan 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 Vermont Servicer License applications can be completed online through the NMLS. Applicants must complete the entire application, and submit the following items:

• • Company financial statements
  • The following company contacts
    • Primary
    • Primary consumer complaint
    • Exam delivery
    • Pre-Exam
  • Disclosure questions
  • Company business plan containing the following information:
    • Marketing strategies
    • Products & services
    • Target markets
    • Fee schedule
    • Operating structure
  • Certificate of Good Standing
  • Company’s financial privacy policy
  • Company’s Gramm-Leach-Bliley privacy policy
  • Company formation documents
  • Company management and organizational charts
  • Trust account authorization

The following items must be emailed to DFR.NMLS1@vermont.gov

• • Financial statements for all company owners with an ownership stake of 10% or more
  • Individual criminal background check requirements
  • Home state licensure

Loan Servicers must pay the following fees when submitting their license application:

• • $1,000 license fee
  • $1,000 application fee
  • $100 NMLS processing fee
  • $36.25 background check fee (per person)
  • $15 credit report fee (per person)

How Do Vermont Loan Servicers Renew Their License?

Loan servicers can renew their licenses online through the NMLS. License holders need to simply login to their account to access their renewal application. The Vermont Loan Servicer License expires on December 31 of each year and must be renewed before the expiration date.

What Are the Insurance Requirements for the Vermont Loan Servicer License?

Vermont does not require loan servicers to obtain any form of liability insurance as a prerequisite to obtaining a business license. Loan Servicers must purchase and maintain a $100,000 surety bond.

How Do Vermont Loan Servicers File Their Bond?

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 loan servicing company. 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 and state of incorporation
• Bond amount
• Date the bond is signed

What Can Vermont Loan Servicers Do to Avoid Claims Against Their Bond?

To avoid claims on their bond, loan servicers in Vermont 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
• Do not breach any contracts made with consumers

What Other Insurance Products Can Agents Offer Loan Servicers in Vermont?

Vermont does not require loan servicers 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 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 Vermont Loan Servicer Customers?

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