Servicers May Face New Licensing, Bonding Requirements in Montana

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BLOG VIEW: Mortgage servicers in Montana may soon have to comply with changes in licensing and bonding requirements if a new bill passes in the state legislature.

House Bill 107 is a part of the 66th legislative session in Montana that started on January 7. The purpose of the bill is to revise the Montana Mortgage Act, thus it would affect most mortgage professionals in the state.

The biggest changes, however, are targeted at mortgage servicers. 

One rule change that is notable is that servicers will have to provide different amounts of mortgage servicer surety bonds.

In addition, the bill would impose new requirements for minimum tangible net worth that companies have to maintain, which can be substituted with a surety bond as well. 

Changes to House Bill 107

The new legislation aims to provide a better legal framework for the operation of mortgage servicers in Montana. For this purpose, House Bill 107 would introduce a number of new criteria that this type of professionals should fulfill.

As noted, the surety bond requirement for obtaining a state license as a Montana mortgage servicer would be altered. Under the current law, all applicants have to provide a $100,000 bond. With the proposed new rules, the bond amount can be between $75,000 and $350,000. 

The exact amount for each servicer is set on the basis of their total unpaid principal balance of residential mortgage loans on December 31 of each year. 

The mortgage servicer bond amounts would be as follows:

  • $75,000 for unpaid balance below $25 million per year;
  • $150,000 for unpaid balance between $25 million and $100 million per year;
  • $250,000 for unpaid balance between $100 million and $500 million per year; and
  • $350,000 for unpaid balance above $500 million per year.

In addition, mortgage servicers would have to meet capital requirements. If they are working with a portfolio of only non‑government sponsored enterprise loans, they would have to maintain a minimum tangible net worth of $1 million. Alternatively, they would be able to provide a $1 million surety bond to fulfill this criterion.

Effects of the Proposed New Requirements

The changed bonding criteria for getting a Montana mortgage servicer license would affect all applicants with total unpaid balance above $25 million per year, as they would have to provide higher bonding amounts. Only servicers with balance below $25 million would benefit from a decrease in the bond they have to provide.   

Thus, for most servicers in Montana, the passing of House Bill 107 would mean higher licensing and bonding costs. The bond price that applicants have to pay is based on the required bond amount, representing a few percents of it. It is determined by considering the financial strength of the servicer. Professionals with stable finances typically pay about 1% to 5% of the required amount to get their bond. For the maximum bond amount of $350,000, this means a bond premium between $3,500 and $17,500. 

The minimum net worth requirement is also an extra safety measure that state authorities may impose. For companies that cannot meet the $1 million criterion, providing a $1 million surety bond would also entail additional costs. 

In the same time, the new bonding requirements would also ensure better accountability and more security for the state and servicers’ customers. The bond amount that is posted is the penal sum that can be claimed in cases when a licensed servicer transgresses from their legal obligations. Thus, this security mechanism aims at limiting misuse and fraud and thus raising the standard of mortgage professions in Montana. 

How do you see the effects of the proposed new licensing and bonding requirements for Montana mortgage servicers? Please share your insights in the comment section below. 

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

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