Thursday, Dec. 11, 2008 | 1:09 p.m.
- Their dreams shattered, investors left to wonder (11-28-2008)
- City works to prevent foreclosures (11-13-2008)
- Those empty homes for sale are harming communities (10-28-2008)
- State plan could ease pressure of ‘tsunami’ (10-23-2008)
- Reid, Goodman tour foreclosed homes, present remedy (10-22-2008)
- Bill to protect renters in foreclosure cases (10-20-2008)
CARSON CITY – The state failed to adequately regulate mortgage companies to protect the public, a legislative audit says.
The state Division of Mortgage Lending failed to examine all mortgage companies annually, as required, and to collect about $1.5 million in assessments, fees and fines, according to the audit. There were 1,295 mortgage companies in 2007 and the audit division said a sampling showed that 77 percent were not given a yearly examination.
Eighty-seven percent of companies considered high risk were not given follow-up reviews.
“You are not meeting your mission,” said Assemblywoman Sheila Leslie, D-Reno. “The performance is abysmal.”
Former Assemblyman John Marvel, a member of the audit committee that received the report, said, “You are putting investors in a risky situation.”
“A lot of people can be hurt badly,” said Marvel, adding the division was created to protect the public.
Dennis Klenczar, deputy legislative auditor, said, “When examinations are not performed, there is an increased risk that violations and unethical business practices will not be identified and corrected.”
It is estimated that close to 50 percent of residential mortgage loans are originated by independent mortgage brokers. And an estimated 70-80 percent of nonprime loans are originated by these brokers.
Nevada had the highest foreclosure rates in the nation.
The time period audited was for 2007 and Division Commissioner Joseph Waltuch said all nine recommendations will be complied with. Waltuch, who took over the commissioner’s job in September 2007, said the division was working on many of the issues before the audit was released.
The number of mortgage companies in 2007 was 1,295 and that dropped to 735 this year. And the number of mortgage agents fell from 9,147 in 2007 to 4,711.
Waltuch said the division was accomplishing its mission but Leslie said the report reflects poor management. And there was a failure to hire adequate staff to police the industry.
Sen. Bob Coffin, D-Las Vegas, said the division should have hired the additional 10 examiners as authorized by the Legislature. He said consumer protection is the prime role of the division.
The division is not going to hire these additional employees, said Nancy Corbin, deputy commissioner. She said the present staff can adequately police the declining industry.
But to catch up, the division still must conduct 311 examinations, she told the audit subcommittee. All of the high risk companies have been examined.
The law requires annual examinations. In one case, a company that was inspected in November 2002 and received a low rating never got another examination until May 2008.
The audit said timely examination is required of those with trust accounts because of significant risk to investors and borrowers whose funds are held in trust. In one case, one broker with four trust accounts, which a combined balances of about $13.5 million, showed activity in excess of $28 million.
And the division did not put a priority on examining the high risk mortgage companies.
The agency does not receive any state general fund money but charges $60 an hour during the examination time to finance its operation.
The audit said, “Problems with the enforcement process also allowed companies and individuals who committed serious violations to avoid or postpone paying fines.” In one case, there was a $10,000 fine imposed and an order to cease and desist business was issued in May 2006. The case was dismissed two years later. But the division is considering re-instating the disciplinary action.
Cy Ryan may be reached at (775) 687 5032 or [email protected].