2000 Minnesota Statutes

     58.08 Bonds; letters of credit. 

    Subdivision 1.    Requirement of residential mortgage 
 originators.  A residential mortgage originator licensee 
 engaging in servicing a residential mortgage loan shall 
 continuously maintain a surety bond or irrevocable letter of 
 credit in an amount not less than $50,000 in a form approved by 
 the commissioner, issued by an insurance company or bank 
 authorized to do so in this state.  The bond or irrevocable 
 letter of credit must be available for the recovery of expenses, 
 fines, and fees levied by the commissioner under this chapter 
 relating to servicing, and for losses or damages incurred by 
 borrowers as the result of a licensee's servicing-related 
 noncompliance with the requirements of this chapter, sections 
 325D.43 to 325D.48, and 325F.67 to 325F.69, or breach of 
 contract. 

    The bond or irrevocable letter of credit must be submitted 
 with the originator's license application, and evidence of 
 continued coverage must be submitted with each renewal.  Any 
 change in the bond or letter of credit must be submitted for 
 approval by the commissioner, within ten days of its execution. 

    Subd. 2.    Requirement of residential mortgage servicers. 
  A residential mortgage servicer licensee shall continuously 
 maintain a surety bond or irrevocable letter of credit in an 
 amount not less than $100,000 in a form approved by the 
 commissioner, issued by an insurance company or bank authorized 
 to do so in this state.  The bond or irrevocable letter of 
 credit must be available for the recovery of expenses, fines, 
 and fees levied by the commissioner under this chapter, and for 
 losses or damages incurred by borrowers or other aggrieved 
 parties as the result of a licensee's noncompliance with the 
 requirements of this chapter, sections 325D.43 to 325D.48, and 
 325F.67 to 325F.69, or breach of contract relating to activities 
 regulated by this chapter.  

    The bond or irrevocable letter of credit must be submitted 
 with the servicer's license application and evidence of 
 continued coverage must be submitted with each renewal.  Any 
 change in the bond or letter of credit must be submitted for 
 approval by the commissioner, within ten days of its execution. 

    Subd. 3.    Exemption.  Subdivisions 1 and 2 do not 
 apply to mortgage originators or mortgage servicers who are 
 approved as seller/servicers by the Federal National Mortgage 
 Association or the Federal Home Loan Mortgage Corporation. 

    Subd. 4.    Irrevocable letter of credit.  As used in 
 this chapter, an irrevocable letter of credit must be accepted 
 only if it is clean, irrevocable, and contains an evergreen 
 clause. 

    (a) "Clean" means a letter of credit that is not 
 conditioned on the delivery of any other documents or materials. 

    (b) "Irrevocable" means a letter of credit that cannot be 
 modified or revoked without the consent of the beneficiary once 
 the beneficiary is established. 

    (c) "Evergreen clause" means one that specifically states 
 the expiration of a letter of credit will not take place without 
 a 60-day notice by the issuer and one that allows the issuer to 
 conduct an annual review of the account party's financial 
 condition.  If prior notice of expiration is not given by the 
 issuer, the letter of credit is automatically extended for one 
 year. 

    A clean irrevocable letter of credit must be accepted only 
 if it is issued by a financial institution that is authorized to 
 engage in banking in any of the 50 states or under the laws of 
 the United States, and whose business is substantially confined 
 to banking and supervised by the state commissioner of commerce 
 or similar official, and that has a long-term debt rating by a 
 recognized national rating agency of investment grade or 
 better.  If no long-term debt rating is available, the financial 
 institution must have the equivalent investment grade financial 
 characteristics. 

    HIST: 1998 c 343 art 1 s 8; 1999 c 151 s 36; 2000 c 427 s 15