A state is selecting a financial-responsibility mechanism for its MLO licensing system. Under 12 U.S.C. 5107(d)(6), which approach is recognized by the SAFE Act?
Correct Answer
D) Minimum net worth or surety-bond requirements reflecting loan volume, or an originator-funded recovery fund
D. The statute recognizes volume-related net-worth or bonding requirements, or an originator-funded recovery fund. Read the alternatives as requirements for a state licensing system. The provision does not specify one flat national bond amount. Scope and exceptions: An applicant must satisfy the state’s actual implementation, not choose a preferred alternative independently. Bond terms and recovery eligibility are separate questions. The cited text is the official 2024 Code edition; current state implementation requires separate verification. Source: 12 USC 5107(d)(6), official 2024 edition — https://www.govinfo.gov/content/pkg/USCODE-2024-title12/html/USCODE-2024-title12-chap51-sec5107.htm
Why This Is the Correct Answer
D. The statute recognizes volume-related net-worth or bonding requirements, or an originator-funded recovery fund. Read the alternatives as requirements for a state licensing system. The provision does not specify one flat national bond amount. Scope and exceptions: An applicant must satisfy the state’s actual implementation, not choose a preferred alternative independently. Bond terms and recovery eligibility are separate questions. The cited text is the official 2024 Code edition; current state implementation requires separate verification.
Why the Other Options Are Wrong
Option A: Professional-liability insurance alone, with no applicable net-worth, bond, or recovery-fund requirement
Professional-liability insurance alone is not one of the specified alternatives.
Option B: Both a surety bond and a recovery fund in every state, with no alternative mechanism
This changes alternatives into a mandatory combined arrangement.
Option C: A fixed federal $50,000 bond for every MLO, regardless of loan volume or state requirements
The statute does not prescribe this flat $50,000 amount.
Exam Tip
Distinguish the federal menu of mechanisms from the state’s implemented requirement.
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