As of January 1, 2018 consumer loan companies originating and servicing residential mortgage loans and non-residential loans in Washington will need to comply with new surety bond requirements.

These include different bond amounts for newly licensed loan companies, as well as a minimum net worth amount for applicants or licensees servicing residential mortgage loans.

Read on for a summary of the current and upcoming requirements!

Current consumer loan companies bond requirements (effective until January 1, 2018)

According to the Washington Administrative Code (WAC) Chapter 208-620, Section 325 currently loan origination companies in Washington must either:

• obtain a bond whose initial amount is based on their volume of loan origination in the previous year
• or a $100,000 surety bond if newly licensed with the Washington State Department of Financial Institutions.

Companies who only service residential mortgage loans must obtain a $30,000 surety bond.

Afterwards, their bond amount is determined on the basis of the annual dollar amount of the loans serviced:

• A $30,000 bond for loans of $50 million or less
• A $50,000 bond for loans exceeding $50 million,

Third-party loan modification services must obtain a $30,000 bond when getting licensed, which remains unchanged upon renewal of their license in following years.

New consumer loan companies bond requirements (effective January 1, 2018)

Beginning next year, all loan origination companies will need to obtain a $30,000 surety bond upon initial licensing, when there are no previous origination volumes on record.

Afterwards, for both residential mortgage loan origination AND non-residential loan origination companies the amounts will be determined by the annual dollar amount of originated loans.

Moreover, companies offering both residential loan origination and servicing will also need to obtain a bond in one of the following amounts:

• $30,000 for $0 to $20 million in loans originated
• $50,000 for $20 million to $40 million
• $100,000 bond for $40 million to $50 million
• $150,000 bond for $50 million and above

The amount for companies who originate residential and non-residential loans (so-called combined origination) is based on the combined origination volume in the previous year.

Finally, companies who broker residential mortgage loans will need to obtain a $30,000 bond initially. Thereafter, their bond amount will be adjusted according to the yearly total principal amount of the loans they have brokered (similar to the above amounts).

Net worth requirement for residential mortgage loans servicing companies

A special clause applies to consumer loan companies who only service residential mortgage loans. They will need to maintain a minimum net worth, determined by the amounts of loans they service.

Alternatively, the section 322 allows them to obtain a $1,000,000 surety bond.

Why is a surety bond required for loan companies?

Surety bonds are put in place to secure protection to the customers and clients of businesses. They act as a guarantee that consumer loan companies will comply with state statutes and regulations that govern their industry.

If they violate them by acting dishonestly or by engaging in fraudulent activities, a claim can be made against their bond. This allows their clients to secure compensation if they have suffered any losses due to the actions on the part of the loan company.

The new bond requirements will require consumer loan companies in Washington to obtain bonds that are tailored to volume of their business. Do you think these new requirements are better than the ones before? Let us know what you think!

 

About the author: Todd Bryant is the president and founder of Bryant Surety Bonds. He is a surety bonds expert with years of experience in helping business owners get bonded and start their business.