Regulation of mortgage industry OK’d on final day

Tuesday, June 1, 1999 | 11:03 a.m.

CARSON CITY -- The bill tightening regulation of the mortgage broker industry, spawned by the Harley Harmon scandal in Las Vegas, was approved on the final day of the Legislature and forwarded to Gov. Kenny Guinn.

Mortgage companies that sell deeds of trust would be forced to open their records more to potential investors. They would not be able to advertise guaranteed profit margins and their agents must be registered.

The Senate and Assembly adopted a conference committee compromise fashioned by Assemblyman David Goldwater, D-Las Vegas, Secretary of State Dean Heller, Marty LeVasseur of the Association of Mortgage Brokers and lobbyist Jack Vergiels.

One important section, Goldwater said, would protect investors from abuse in the use of power of attorney. An investor may sign power of attorney to the mortgage company, but it would be good either for six months, when it must be renewed, or it would be limited to a particular investment and is good for the life of the investment.

Harmon, a former assemblyman and member of a prominent Southern Nevada family, ran a mortgage investment business that collapsed. More than 700 investors initially lost $23 million. After some money was recovered, the overall loss was about $10 million, according to investors.

Harmon, who has not been criminally charged, was able to move investors' money among various projects because he had unlimited power of attorney.

The bill, according to Heller, includes important consumer protection disclosure requirements. Anybody would be able to call the state Division of Financial Institutions to see if the mortgage broker firm has been involved in past disciplinary actions.

A potential investor who wants to check the financial stability of the company would be able to get that information from the state agency.

Still confidential would be any ongoing investigation into complaints against a firm.

Assembly Bill 64, which was pre-filed Jan. 28 before the session began in February, was originally passed by the Assembly. But the Senate Commerce and Labor Committee stripped many of the consumer protections away. The Assembly then passed an even stronger bill.

That set the stage for a showdown. Heller said considerable credit should be given to Sen. Mark James, R-Las Vegas, for holding a hearing on the second bill, Assembly Bill 72. That, he said, brought the mortgage industry representatives to the bargaining table.

LeVasseur said the bill would cover only 11 companies that use trust accounts in deeds of trusts. The compromise, he said, would protect both the investor and the small company. Competitors would not be able to get information about another firm that would give them an advantage, he said.

The bill gives Attorney General Frankie Sue Del Papa both criminal and civil authority over the industry. Fines, which were $500, were increased to a maximum of $10,000.

Goldwater said the commissioner of financial institutions will be required to impose a fine or penalty if he finds an infraction, and the fines would be made public.

There would be a requirement for companies to maintain a minimum net worth based on a sliding scale pegged to their business.