One facet of a legislation that takes impact in Connecticut on Oct. 1 was designed to enhance the surety bond cancellation process by totally automating it, however making that doable will contain a procedural change that servicers who’re additionally lenders within the state might want to perceive.
“The invoice typically requires surety corporations to present all their cancellation notices electronically for the bonds they problem to sure banking division regulated entities,” in accordance with Connecticut’s Office of Legislative Research.
The state solely requires lender-servicers to have one license on the nationwide trade platform states use, which additionally has a registry part. However, Connecticut has two separate surety bond necessities: one for lending operations and the opposite for servicing.
So to make sure surety bonds may be cancelled by automation on that platform, avoiding delays that happen by a handbook process that might contain mailing, lenders on this state of affairs might want to create a second registration for his or her servicing operations.
Why finishing the process is vital
Industry attorneys are urging lender-servicers working with mortgages in Connecticut want to finish this process by Oct. 1 as a result of the surety bond process is important to sustaining their license.
Loss of a surety bond at Connecticut lender 1st Alliance led to the corporate’s closure throughout a authorized disagreement with regulators over the way it licensed people. (The Consumer Financial Protection Bureau’s case towards 1st Alliance was dismissed earlier this 12 months.)
The origins of surety bond use within the mortgage trade
Surety bonds got here into broader use within the mortgage trade after the Great Financial Crisis, pushed largely by the Secure and Fair Enforcement of Mortgage Licensing Act, which created the Nationwide Multistate Licensing System and Registry and usually made them a requirement.
The intention of surety bonds is to make sure that mortgage entities adjust to legal guidelines and regulation, permitting for claims to be filed towards it for compensation if there are injured events.
Surety bond cancellations can happen for a routine motive like expiration but in addition attributable to contingencies reminiscent of nonpayment of premiums.
