Harmon bill goes down to the wire

Scott Reeder

Friday, May 28, 1999 | 11:26 a.m.

CARSON CITY -- A battle is promised in the waning hours of the Legislature by the sponsor of a bill to protect mortgage investors who charges that compromises have stripped away most protections.

Assembly Bill 64 was endorsed Thursday by a Senate committee but Assemblyman David Goldwater, D-Las Vegas, had harsh words for changes the committee made and promised a major battle in a conference committee between the Assembly and the Senate.

The battle began this morning in the Assembly as the Ways and Means Committee revived Assembly Bill 72, which imposes strict regulations on mortgage brokers.

"They watered the bill down," Goldwater said Thursday, referring to AB64. "I really don't know why they did it. Well, the mortgage industry is very powerful in this state and they hired a whole lot of lobbyists."

And Nevada Secretary of State Dean Heller, a Republican, branded the bill "useless."

"All of the consumer protection provisions in the bill have been removed," Heller said. "The bill really doesn't do much now. I don't think much will come out of the conference committee. The industry had lobbyists in those committee meetings two-deep.

"I just don't think there is an appetite in the Legislature for doing anything with the mortgage industry. How much do investors have to lose? I can't help but wonder if this bill is just a whitewash."

The bill was inspired by the experience of about 700 investors in the Harley L. Harmon Mortgage Co. of Las Vegas, who in 1997 together lost more than $20 million when the company collapsed.

Goldwater said the committee stripped out a provision in the bill that would have required investors to sign a power of attorney for each individual transaction made for them.

Under the amended bill, investors must give written permission before a mortgage agent can move their money into other investments, but Goldwater says the power of attorney requirement would have provided more protection against discretionary decisions by agents.

Investors currently can simply sign a blanket power of attorney that allows a broker to make decisions without consulting the client.

The Senate Commerce and Labor Committee, chaired by Sen. Randolph Townsend, R-Reno, endorsed the measure in a voice vote Thursday morning. It could be one of the last bills to be considered by the Legislature, which must adjourn by Monday.

"To be perfectly honest, I really don't care whether the bill in its current format passes or not," Goldwater said.

One provision in the original bill that was taken out by Townsend's committee instituted a $750 licensing fee for mortgage agents. The bill endorsed Thursday simply requires that agents pay a $50 fee for background checks and register with the state Financial Institutions Division. The amended version also strips the bill of mandatory fines against mortgage companies for bookkeeping errors.

Goldwater said another provision taken out of AB64 would have required that advertisements for mortgage investments note that the money is not insured by the federal government and investors could lose money.

The laws are not clear as to who should investigate and prosecute such crimes in Nevada, Goldwater has said. The mortgage industry is exempt from the state's securities act, and neither Metro Police officials nor officials from the Clark County district attorney's office nor the state attorney general's Office knew who had jurisdiction over the matter, Goldwater said.

Heller noted that under state law his office regulates all securities except mortgage investments. "In 49 other states these investments are treated as securities," he said.

The bill, passed by the Assembly April 30, calls for giving the attorney general's office jurisdiction over prosecution of all criminal and civil cases regarding the mortgage brokers and bankers' industry.

The original bill also outlined the minimum net worth a mortgage banker or broker must have in order to do business.

"The Senate committee changed that requirement. The broker could have a net worth of $1 under this bill. ... The broker has to have something at stake too," Goldwater said.

The original bill would have required mortgage companies to have a minimum net worth of $250,000.

In a counter-move, the Assembly Ways and Means Committee today approved Assembly Bill 72, an even stricter bill to regulate the mortgage brokers.

This bill has been dormant in the committee for more than two months. But when the Senate Commerce and Labor Committee gutted the other bill regulating the industry, the measure was revived.

This turns regulation over to Secretary of State Dean Heller, who says it includes good protections for the public.

The bill, which goes to the floor of the Assembly, requires that every agent who deals with mortgage securities must be licensed, which will include an FBI and a police check.

"This will become public information so any consumer can call our office and check the background of somebody," Heller said.

It requires all financial information to be disclosed before any mortgage deal is made. The finances of the company, how the money will be used and the principals in the deal, will all be made public to give the consumer a chance to judge the merits of the proposal, Heller said.

In addition, AB72 allows security agents from Heller's office to make unannounced inspections of the books of mortgage brokers to see if they are complying with the law. These will usually be conducted if there are complaints.

And Heller would have the authority to issue an immediate "cease and desist" order against a company while it does a deeper investigation.