New Jersey passes licensing law for nonbank mortgage servicers

NEW JERSEY — Mortgage servicers must now obtain a $100,000 bond to be able to legally operate in the state, according a new law that went into effect July 28.

The recently passed Bill A4997, known as the Mortgage Servicers Licensing Act, lays out the bonding requirement as well at the obligations and responsibilities of licensed servicers.

The bill defines “mortgage servicer” as “any person, wherever located, who, for the person or on behalf of the holder of a residential mortgage loan, receives payments of principal and interest in connection with a residential mortgage loan, records the payments on the person’s books and records and performs the other administrative functions as may be necessary to properly carry out the mortgage holder’s obligations under the mortgage agreement including, when applicable, the receipt of funds from the mortgagor to be held in escrow for payment of real estate taxes and insurance premiums and the distribution of the funds to the taxing authority and insurance company; and includes a person who makes repayments to borrowers pursuant to the terms of a home equity conversion mortgage or reverse mortgage.”

The act specifies exemptions from the rule for several banking institutions and credit unions and for already licensed New Jersey mortgage lenders. However, to act as servicers, lenders still need to comply with the surety bond requirements and errors and omissions coverage requirements, according to the act.

Anyone needing a license must apply through the New Jersey Department of Banking and Insurance, completing a license application on a form provided by the commissioner.

The $100,000 surety bond is meant to guarantee a servicer’s (principal’s) compliance with requirements of the Act. The bond is conditioned on the principal’s performance of all agreements and commitments they have with mortgagors (any person obligated to repay a residential mortgage loan) and mortgagees (the grantee of a residential mortgage), and the accounting for all funds they receive in their capacity as a servicer.

If the servicer violates any agreement, the mortgagor can file a claim against the bond.

Servicers are also required to obtain a fidelity bond and an errors and omissions insurance policy, each in a prescribed amount based on the amount of the residential mortgage loans serviced, according to the act.

  • If the amount of the residential mortgage loans serviced is $100,000,000 or less, the principal amount shall be $300,000
  • If the amount of the loans exceeds $100,000,000, the principal amount shall be $300,000 plus:
    • three-twentieths of one percent of the amount of residential mortgage loans serviced greater than $100,000,000 but less than or equal to $500,000,000;
    • plus one-eighth of one percent of the amount of residential mortgage loans serviced greater than $500,000,000 but less than or equal to $100,000,000,000; and
    • plus one-tenth of one percent of the amount of residential mortgage loans serviced greater than $100,000,000,000.
  • The fidelity bond and errors and omissions coverage may provide for a deductible amount not to exceed the greater of $100,000 or five percent of the principal amount.

An initial mortgage servicer license will expire on Dec. 31 of the year in which it is approved, except for any license that is approved on or after Nov. 1, which will expire at the same date the following the year, according to the act.

A license renewal application must be filed between Nov. 1 and Dec. 31 of the year in which the license expires. The license renewal fee is $3,000 because renewed licenses will be valid for a period of three years.

Visit the New Jersey Department of Banking and Insurance website for more information regarding mortgage servicer license requirements.

Alpha Surety & Insurance Brokerage will be happy to answer any questions regarding the New Jersey Mortgage Servicers Surety Bond or any surety bond questions in general. You can call 800-901-3099 or send an email through the contact us page. We are here to answer your questions and help you fully understand surety bonds whether or not you choose to bond with us.

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