Montana - Revised Mortgage Lender Bond

According to Robert Duke, the Director of Underwriting/Assistant Counsel with the Surety & Fidelity Association of America, Montana has issued new rules regarding a $50,000 mortgage lender bond requirement. The SFAA has submitted comments regarding the five year tail.  At this time the Division of Banking indicated that the tail will remain.  A formal copy of the bond form has been released for review and use.  Although there is an aggregate clause, other language in the form brings the effectiveness of such clause into question.

What does that mean for you, the Montana Lender or potential applicant?

The State of Montana has come-up with a new bond form for Mortgage Lenders that, as you will see, includes language that is contradictory and calls into question whether a surety's liability on the aggregate is limited to the penal sum of the bond.  In addition, this bond now carries a five year tail.  And finally, the Montana law now holds the Mortgage Lender responsible for the actions of independent contractors as well as its employees at any of it's branch offices.  Apparently, this closes a previous defense used by Lenders in skirting liability.      

The SFAA is seeking to resolve the contradiction between the apparent aggregate clause in the bond and  wording that seems to indicate otherwise. Therefore for this class of business even the hint that stacking is a possibility, let alone the other issues, makes this bond unacceptable.  This bond joins two others that are prohibited for various reasons: Pennsylvania Mortgage Broker & District of Columbia Mortgage Lender Bond.

In Summary:

These changes will adversely affect all current Montana Mortgage Lenders and potential applicants in regards to the bond requirement for licensure. Current mortgage lenders licensed inMontana will either see their premium increase on their current bond and/or receive notices of non-renewal or cancellation on their bond. For new applicants it means fewer markets writing the bonds and thus higher costs and lower chances of approval for this bond and therefore license.