Rhode Island Considers New Surety Bond and Minimum Net Worth Requirements for Mortgage Loan Originators

On November 5, Rhode Island’s Department of Business Regulation (DBR) proposed the adoption of Banking Regulation 6 (BR 6) entitled "Surety Bond and Minimum Net Worth Pursuant to the Secure and Fair Enforcement Mortgage Licensing Act of 2009," which would implement statutory requirements for mortgage loan originators regarding surety bonds and minimum net worth. The DBR maintains that the new regulation will protect Rhode Island consumers by reserving funds for those injured by mortgage loan originators and by ensuring that mortgage loan originators are financially stable. Under Section 5 of the new regulation, mortgage loan originators that originate between $1 and $10 million per year would be required to file a minimum $10,000 surety bond with the DBR while originators that originate more than $10 million per year would be required to file a surety of at least $15,000. The exact bond requirements would vary yearly based on a formula tied to the amount of mortgage loans originated in Rhode Island in the preceding year. According to the regulation, the surety bond must be continuous and will be used for the benefit of Rhode Island consumers injured by the mortgage loan originators, but the requirement can be fulfilled by utilizing the surety bond of the mortgage loan originator’s licensed lender or loan broker. Section 6 of the new regulation would impose a requirement that applicants for a new license must demonstrate a minimum net worth of $10,000 for annual volume of Rhode Island loans originated in an amount up to $10 million, and $25,000 for volume of Rhode Island loans originated in an amount greater than $10 million. Applicants must maintain this minimum net worth continuously and cannot rely on the net worth of their employers to satisfy the requirement. The DBR may waive or modify the requirement if it deems it appropriate based on written evidence. The DBR is currently accepting written and oral comments on the new regulation, and it will hold a public hearing to consider the adoption of the new regulation.