Tougher laws regulating mortgage investments urged

Thursday, Dec. 3, 1998 | 11:18 a.m.

Nevada legislators seeking to tighten regulation of mortgage companies that handle private investments in real estate and construction loans urged broader state authority to criminally prosecute and fine law breakers.

The recommendations made Wednesday in Las Vegas by the Legislative Commission's Subcommittee to Investigate Regulation of Mortgage Investments will be forwarded to the 1999 Legislature.

The subcommittee, chaired by Assemblyman David Goldwater, D-Las Vegas, decided to review mortgage company laws after hundreds of local investors lost millions of dollars through the now-defunct Harley L. Harmon Mortgage Co. of Las Vegas. Investors charged that the company, which the state closed last December, mishandled loan investments by using some investor money to pay off others and by keeping inadequate records.

Among the subcommittee's recommendations:

Several Harmon investors have complained that the attorney general's office failed to pursue criminal action against Harley L. Harmon, the former assemblyman who ran the mortgage company. Jonathan Andrews, chief deputy attorney general in the civil division, told the subcommittee that his office didn't have the authority to pursue such prosecution.

Sen. Bill O'Donnell, R-Las Vegas, said he was "irritated" by this lack of authority.

"With all the consumer protection disseminating from your office I can't believe this has been overlooked," O'Donnell said.

But Goldwater said this recommendation would clarify existing law, noting that mortgage companies shouldn't be allowed to guarantee a specific rate of return on an investment.

Secretary of State Dean Heller, who called the regulation of mortgage companies the most pressing consumer protection issue in Nevada, also offered to shoulder some of the regulatory responsibility.

He urged the subcommittee to recommend that his office's securities division be allowed to register all first trust deeds handled by mortgage companies. Had this provision existed in the Harmon case, those investors could have taken their complaints to Heller's office.

"I'm unaware of any of the other 49 states that have this exemption in their laws," Heller said.

Heller's recommendation means that mortgage company officials who violate registration requirements related to first trust deeds and other investments would be subject to criminal prosecution for securities fraud. Heller said he would probably need only two additional investigators to fulfill this recommendation, which will be considered at the subcommittee's next meeting.