N.Y. Comp. Codes R. & Regs. tit. 3 § 418.12

Current through Register Vol. 46, No. 45, November 2, 2024

Section 418.12 - Financial responsibility requirements for Mortgage Loan Servicers and Applicants, other than insured depository institutions covered by Section 418.13

Each Applicant for registration to engage in the business of Servicing Mortgage Loans shall provide the Superintendent with evidence acceptable to the Superintendent of its financial responsibility. In particular:

(a) Net worth. Each Applicant shall demonstrate the ability to maintain, and a registered Mortgage Loan Servicer or Exempted Person (other than an insured depository institution covered by § 418.13) shall maintain net worth of at least $250,000 plus 1/4 of 1% of the outstanding principal balance of aggregate mortgages serviced (whether or not in New York), provided, that, if such Person is solely a Third-party servicer, such net worth calculation shall be based upon the amount of the entity's New York mortgage loans serviced, and if such Person is a Third-party servicer with respect to certain mortgage loans and owns other mortgage loans or the servicing rights thereto, it shall maintain net worth of at least $250,000 plus 1/4 of 1% of the outstanding principal balance of the non-Third-party servicer loans and 1/4 of 1% of the outstanding principal amount of the New York mortgage loans for which it is a Third-party servicer. Net worth for purposes of this Part shall consist of total equity capital, determined in accordance with Generally Accepted Accounting Principles, at the end of the most recent reporting period for which financial results are available, less:

(i) goodwill and other intangible assets (excluding mortgage servicing rights);

(ii) assets pledged to secure obligations of a Person other than the Servicer,

(iii) any amounts due from officers or stockholders of the Servicer or from a related company,

(iv) any amount in excess of the lower of cost or market value of mortgages in foreclosure, construction loans or property acquired through foreclosure, and

(v) any other receivables that the Superintendent determines are not collectable. At least 10% of the net worth required under this paragraph shall consist of cash, cash equivalents or readily marketable securities.

(b) Surety bond.

(1) Each MLS registered pursuant to this Part and each Exempted Person (other than an insured depository institution covered by Section 418.13) shall cause to be filed with the Superintendent a corporate surety bond in a principal amount of not less than $ 250,000. Such corporate surety bond shall be issued and filed with the Department by an insurance company licensed to do business in this State. If the Superintendent determines, in his or her sole discretion, that an MLS has engaged in a pattern of conduct resulting in bona fide consumer complaints of misconduct under applicable laws and regulations of the United States or this State, the Superintendent may require such MLS to post a surety bond twice the amount of such bond as would otherwise be required by this subdivision.

2. Such bond shall be in favor of the Superintendent for the protection of the Superintendent and residential mortgage consumers located in New York State and it shall contain substantially the following language:

"In the event of the insolvency, liquidation or bankruptcy of such MLS, or the surrender or revocation of such MLS's registration, or where the Superintendent takes possession of such MLS pursuant to Section 636 of the Banking Law, the proceeds of this bond shall constitute a trust fund to be used exclusively by the Superintendent to reimburse consumer fees and undisbursed consumer payments or other charges determined by the Superintendent to be improperly charged or collected and to pay past due Department examination costs and assessments charged to the MLS, unpaid penalties, or other obligations of the MLS under applicable laws and regulations of the United States or this State . In the event of the insolvency, liquidation or bankruptcy of the MLS, or the expiration, surrender or revocation of such MLS's registration, or where the Superintendent takes possession of such MLS, the proceeds of the bond, upon demand of the Superintendent, shall be paid immediately to the Superintendent for disposition in accordance with the applicable provisions of the Banking Law."

(c) Fidelity Bond and E&O Coverage.

(1) Each MLS registered pursuant to this Part and each Exempted Person (other than an insured depository institution covered by Section 418.13) shall cause to be filed with the Superintendent a Fidelity Bond and evidence of E&O Coverage (each naming the Superintendent as an additional loss payee) covering, in the case of the Fidelity Bond, losses arising from fraud, embezzlement, misplacement, forgery and similar events, and covering, in the case of the E&O Coverage, negligence by the servicer with respect to the payment of real estate taxes, hazard and flood insurance or the maintenance of mortgage guaranty insurance, in each case in a principal amount as follows based on its volume of business:

Required amount of Bond and E&O Coverage	Aggregate $ amount of NY loans serviced
$300,000	$100,000,000 or less
plus .15%	of the next $500,000,000
plus .125%	of the next $400,000,000
plus .100%	of the amount over $1 billion

(The amounts shown are the minimum required amounts for each of these policies.)

2. The amount of the Fidelity Bond and E&O Coverage shall be determined from information submitted in the annual Volume of Servicing Report ("VOSR") for the second year prior to the year covered by the Fidelity Bond or the E&O Coverage. For example, the 2009 bond and policy would be based upon the 2007 VOSR figures reported to the Department. Thereafter, adjustments to the amount of the bond shall be made within 30 days after filing the applicable VOSR. Moreover, a registered MLS may submit a sworn statement indicating the aggregate dollar amount of NY loans serviced during the first half of the calendar year, if such amount, on an annualized basis, would change the required amount of the Fidelity Bond and E&O Coverage. Such Fidelity Bond and E&O Coverage shall be issued and filed with the Department by a bonding company or insurance company licensed to do business in this State. If the Superintendent determines, in his or her sole discretion, that an MLS has engaged in a pattern of conduct resulting in bona fide consumer complaints of misconduct, the Superintendent may require such MLS to post a Fidelity Bond and E&O Coverage in amounts that are twice the amount that would otherwise be required by this subdivision.

3. The Fidelity Bond and E&O Coverage may provide for a deductible amount not to exceed the greater of $100,000 or 5% of the face amount of such bond or coverage.

(d)Modification or waiver of requirements. Upon application as prescribed by the Superintendent, the Superintendent may reduce, waive, or modify the requirements under Section 418.12:

(i) for a Person engaged in the business of Servicing Mortgage Loans who services less than $4,000,000 in aggregate amount of Mortgage Loans and who does not collect money for the purpose of paying taxes or insurance on such loans; and

(ii) in other cases, for good cause shown.

N.Y. Comp. Codes R. & Regs. Tit. 3 § 418.12

Adopted New York State Register July 17, 2019/Volume XLI, Issue 29, eff. 7/17/2019