Rhode Island Banking Regulation 6 Reevaluated

Rhode Island Banking Regulation 6 (more formally known as Surety Bond and Minimum Net Worth Pursuant to the Secure and Fair Enforcement Mortgage Licensing Act of 2009) is set to go into effect Jan. 18. Among other things, the regulation aims to establish surety bond coverage requirements for mortgage loan originators in the state. However, ambiguity regarding certain parts of the regulation have sparked concern for the Department of Business Regulation, Division of Banking (DBR) which will likely review the regulation and consider revising it before allowing it to go into effect.

Attorney James H. Hahn is acting as legislative counsel to the Rhode Island Mortgage Bankers Association. Together they outlined some concerns with Regulation 6 that they want clarified. One of the many concerns found in the letter to the DBR questions ambiguity regarding the surety bond requirements.

In his letter to the DBR, Hahn brings up the following concerns:

What bond amount is required for a new mortgage loan originator who has not originated any loans prior to applying for a license? As the Regulation currently provides for a $10,000 Surety Bond for originations from $1 to $10 million annually, the implication is that no bond is required for such an applicant, but that conclusion is inconsistent with the requirement of Section 5.A that all applicants provide a surety bond.

How is the bond amount determined for a registered mortgage loan originator who changes employment from an exempt depository lender to a licensed lender or loan broker?

Loan volume for any calendar year is not easily determinable until late January of the succeeding year, making it impractical for loan volume for the period ending December 31 of any year to be used for the bond amount for the succeeding year.

The letter was submitted to the DBR on Dec. 7, 2010, which was the last day to submit comments or concerns regarding the regulation to the agency. Whether or not the DBR will reconsider the regulation itself remains to be seen, but as written there are already some serious concerns about what the exact surety bond regulations will be.