Nonbank Mortgage Servicers in Pennsylvania Face New Licensing, Bonding Requirements

BLOG VIEW: Nonbank mortgage loan servicers in Pennsylvania must meet new licensing requirements as of June 2018.

Pennsylvania Senate Bill 751 was signed by Governor Tom Wolf in December and makes amendments to the state’s Mortgage Licensing Act.

For servicers, the most important change that the bill introduces is that they must obtain a state license. That’s the only way to get the legal right to conduct mortgage servicing activities in the state.

In order to get licensed, a servicer must meet a set of requirements. For example, a servicer must present to the relevant authorities a valid surety bond as well as a fidelity bond.

The new law also establishes a minimum net worth criterion servicers must comply with. The deadline for adhering to the new rules is June 30, 2018.

The New Licensing Process

In most states across the country, mortgage servicers must get a license before they are allowed to operate. As there were consumer complaints in Pennsylvania about the loan servicing activities, lawmakers in the state decided to make a move towards better regulation of the field.

Senate Bill 751 creates a framework for mortgage servicers’ activities in order to ensure that the interests of consumers are protected. It establishes the licensing procedure and defines terms relating to the servicing field. Its overall goal is to guarantee that servicers will follow all applicable federal and state rules that govern the industry.

With the new amendments to the Mortgage Licensing Act, the Department of Banking and Securities becomes the licensing body for non-bank mortgage loan servicers in Pennsylvania.

However, for most mortgage professionals in the U.S., the licensing process is handled via the Nationwide Multistate Licensing System (NMLS). Loan servicers must submit their full application and supporting documents via NMLS website. A servicer can file its application as of April 1, 2018.

In order to go through the licensing successfully, a servicer must meet the requirements set in the bill. Most notably, a servicer must provide a $500,000 surety bond, which is set as an obligatory security instrument.

A servicer also needs to provide a fidelity bond that guarantees the legal compliance of its employees. It should adhere to the standards of the Federal National Mortgage Association or the Federal Home Loan Mortgage Corp. Additionally, a servicer must maintain a minimum net worth of $250,000 at all times during its licensing period.

Meeting the Bonding Requirements

Two of the main new requirements for mortgage servicers entail posting a surety bond and a fidelity bond. The surety bond requirement is set at $500,000. Its purpose is to provide an extra layer of security for the general public. To get bonded, a servicer must cover a small percentage of the required bond amount. If its finances are in good shape, this can mean a bond premium as low as 1% to 5%.

If a servicer fails to follow federal and state laws, a harmed party can make a claim against its bond. In this way, a harmed party can seek a financial reimbursement. The compensation can be up to the penal sum of the bond, i.e. $500,000. The servicer is liable for all claim costs, so the mortgage servicer bond does not protect its business.

The fidelity bond is a bit different, as it protects both the servicer and its customers against fraudulent activities committed by its employees. In this way, it functions more like insurance. A servicer must obtain an amount set by the Department of Banking and Securities according to its specific case. In case as servicer or its clients suffer damages due to illegal actions of employees, it can seek compensation from the fidelity bond coverage.

Do you have any tips for getting a Pennsylvania mortgage servicer license? If so, please share your insights in the comments below.

Vic Lance is the founder and president of Lance Surety Bond Associates.

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