What are the Bonding Requirements for Mortgage Loan Originators in Arizona?
The new Arizona loan officer licensing laws that ensure compliance with the SAFE Act have led to some confusion regarding the bonding requirements.
An applicant for an original loan originator’s license in Arizona shall have done the following:
ARS 6-991.03.B.4. Deposited with the superintendent a bond executed by the applicant’s employer as principal and a surety company licensed to do business in this state as a surety pursuant to section 6-903 or 6-943.
ARS 6-991.03.B.6. Paid an amount to be determined by the superintendent for deposit in the mortgage recovery fund established pursuant to section 6-991.09 or deposited with the superintendent a bond executed by the applicant’s employer as principal and a surety company licensed to do business in this state for the benefit of any person aggrieved by any act, representation, transaction or conduct of a licensed loan originator that violates this title or the rules adopted pursuant to this title. Notwithstanding section 6-903 or 6-943, the amount of the bond shall be in an amount of not less than two hundred thousand dollars. Loan originators working under the employer bond described in this paragraph do not have to contribute to the mortgage recovery fund.
So, what it is saying is that if you are a licensed loan officer in Arizona, you have to either work for a company that holds a bond of at least 200,000 for its employees, or you personally have to contribute a specified amount to the mortgage recovery fund. This amount is provided as part of your mortgage license application or annual renewal process.
A common misconception is that the individual loan officer has to obtain a bond. Again, this is not the case. The bond is held by the loan officer’s employer.
My experience is that most companies are not opting to obtain the bond and are requiring their employees to contribute to the mortgage recovery fund.
What is the Purpose of the Mortgage Recovery Fund?
ARS 6-991.09.H. The fund is liable to pay only for damages arising out of a transaction in which the defendant licensee performed acts for which a loan originator license was required or when the defendant licensee engaged in fraud or misrepresentation and the aggrieved person was harmed due to reliance on the defendant’s licensed status.
As it says, the mortgage recovery fund is established to compensate victims of fraud or misrepresentation carried out by an Arizona licensed loan officer. It isn’t E&O insurance.
If you have questions about any of the new Arizona Mortgage Loan Originator licensing requirements, feel free to contact me. I’ve had the good fortune of teaching the required Arizona SAFE Act education courses many times for the Arizona School of Real Estate & Business in my spare time while I’m not managing our branch of Academy Mortgage in Mesa, contributing to various mortgage blogs or learning lessons on SEO, business and life from Justin McHood.