Editorial: Better judgment needed at agency

A newly formed legislative subcommittee met last week for the first time to investigate the regulation of mortgage investments following the accusations of state officials' mishandling of the Harley L. Harmon Mortgage Co. case. The company finally had its license taken away last December, but not until it jeopardized $22.7 million in mortgage loan investments.

Harmon received money from as many as 600 people. They were tempted by promises of up to 15 percent interest annually on their investments. The sad fact is that many investors never saw any interest and even lost their principal.

The reality is that every day there are many unscrupulous people seeking to sign up unwitting investors for schemes that are literally too good to be true. But what's especially disturbing and noteworthy about this case is how long it took the state Financial Institutions Division to notify the public that serious allegations of misappropriations were being made against a company it regulates.

Investor Dan Gray testified before the legislative panel last week that the deputy commissioner of the Financial Institutions Division, Burns Baker, had written a memo in February 1997 to the commissioner recommending the immediate suspension of Harmon's license. It wasn't until nine months later -- after the Sun reported on the case in November -- that the division acknowledged that Harmon was under investigation. The Sun's Steve Kanigher reported that several individuals invested tens of thousands of dollars last year without knowing about the investigation.

Financial Institutions Division Commissioner L. Scott Walshaw said it was a "judgment call" not to notify consumers about the agency's investigation. Well, if this was a judgment call, poor judgment was used. A common-sense rule should apply for the regulator: Would you want any member of your family or a friend to invest with such an institution based on what you know about the company? If the answer is no, then the state agency has an obligation to inform the public.

Stronger consumer protection laws for investors who deal with mortgage companies would help, but it's obvious that state regulators need to do a better job of protecting the public interest by notifying consumers when serious and credible allegations are substantiated.

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