BLOG VIEW: New Jersey recently introduced legislation that regulates mortgage servicing in the state. Under the new law, which takes effect July 28, servicers must be licensed and obtain a $100,000 New Jersey mortgage servicer bond in order to operate legally.
The law also specifies the obligations and responsibilities of licensed servicers, such as filing annual reports, keeping records, and more.
New Jersey Mortgage Servicers Licensing Act
By July 28, mortgage servicers in New Jersey will need to obtain a license in order to operate legally in the state. This requirement was recently introduced with the passing of bill A4997, also known as the Mortgage Servicers Licensing Act.
The Act makes exemptions from the rule for a number of banking institutions and credit unions, as well as for already licensed New Jersey mortgage lenders. To act as servicers, the latter need to comply with the surety bond requirements, and errors and omissions coverage requirements, specified in the Act.
Moreover, persons exempt from licensure that service five or fewer residential mortgage loans per year are also exempt from the provisions of this bill.
Those needing a license must apply at the state Department of Banking and Insurance.
Separate applications are required for the designated main office and each branch office of the applicant.
In order to be granted a license, individuals will need to fulfill the following requirements:
- Identify a qualified individual for the main office, and a branch manager for any branch office; each of these must have at least three years of experience in the mortgage servicing business within the five years preceding the application;
- Demonstrate that within the preceding seven years, the applicant, the qualified individual, control persons, and branch managers have no felonies for which they been convicted, pled guilty or nolo contendere to, in a domestic, foreign, or military court, or any felony related to fraud, dishonesty, etc.;
- Demonstrate the financial responsibility, character and general fitness of the applicant, managers, officers, qualified individuals, and control persons so as to warrant a determination that they will operate according to the provisions of the Act;
- Meet the requirements to post a $100,000 surety bond (per office location), a fidelity bond, and secure errors and omissions coverage (see next section for more information about the bond requirement);
- Complete a license application on a form provided by the Commissioner;
- Make sure no material misstatement has been made in the application;
- Provide information concerning the identity of the applicant, control persons, the qualified individual, branch managers;
- Meet any other requirements determined by the Commissioner of Banking and Insurance; and
- Pay an initial license fee of $1,000
Initial applications for this license will expire at the end of the year in which they have been issued, unless issued on or after November 1. In the latter case, they will expire at the end of the following year.
Licenses need to be renewed between November 1 and December 31 of the year in which they expire. The license renewal fee is $3,000 because renewed licenses will be valid for a period of three years.
In addition to the licensing requirements, the bill also specifies a long list of obligations that licensed servicers must complete. These include notifying the commissioner in instances of adverse events, filing annual reports, keeping records, and several others.
The bill also clearly specifies the prohibited activities for which a servicer may be penalized and have their license revoked.
Mortgage Servicer Surety Bond Requirement
The purpose of the $100,000 bond is to guarantee servicers’ compliance with the provisions of the Act. Furthermore, the bond is conditioned on a servicer’s performance of all agreements and commitments they have with the respective mortgagors and mortgagees, and the accounting for all funds they receive in their capacity as a servicer.
If a servicer violates any such agreement, and thereby causes damages to a mortgagor, the latter may file a claim against the surety bond.
When a claim is filed against a bond, the surety that backs the bond will conduct an investigation. If the claim is found to be legitimate, the surety may extend compensation to claimants for up to the full amount of the bond but not more.
The full amount of the bond is not the same as its cost. The surety bond premium is determined by the surety on the basis of an applicant’s credit score, financial statements and other similar information. Typically, the higher an applicant’s score, the lower the cost of their bond.
Todd Bryant is president and founder of Bryant Surety Bonds.