Secrecy remains in mortgage bills

CARSON CITY -- When Del Mar Mortgage's troubles with the state began and the company agreed to pay a $100,000 penalty, the consent order signed by the company and the Financial Institutions Division was kept confidential.

When the investment scheme of Harley Harmon Mortgage Co. started to collapse and the state started its investigation, there was no public disclosure and investors kept pouring money into the venture.

The Legislature is considering a bill calling for increased regulation of the mortgage industry, but it doesn't call for a change in confidentiality regulations. The state would retain the same power to hide from investors anything it wants, according to some legislators.

"One of the problems we found in the Harmon case when the complaints started coming in, investors didn't have access to the records in the office of Financial Institutions. And the office could not by law disclose them," Assemblyman David Goldwater, D-Las Vegas, said.

Goldwater headed the subcommittee that investigated the Harmon case, in which millions of dollars were lost by investors.

"Our original bill (Assembly Bill 64) gave absolute open access to those records, but industry concern and (state) Financial Institutions' concern was there were some instances where you would not want to disclose those things."

So it was changed to make the secrecy provision nearly the same as the present law.

The bill requires all papers, documents and reports filed with the commissioner of the Financial Institutions Division be public, but the commissioner has the power to withhold information that might interfere with an investigation or might have "an undesirable effect on the welfare of the public and welfare of any mortgage company."

Secretary of State Dean Heller complained that the bill "tilts the law toward the industry and against the potential investor."

In the Harmon case, Heller said people invested another $7 million while the state was conducting its undisclosed investigation.

Heller said the bill gives the Financial Institutions Division the authority to protect the industry, and that's its job. "But what about the consumer?" he added.

Heller also wants to regulate part of the industry -- the real estate securities that are being sold. His bill, Assembly Bill 72, would require registration and disclosure of all the financial details before they could be marketed.

"Public disclosure is what protects the consumer," he said.

Heller said his office would have issued a "cease and desist" order while the Harmon investigation was under way. That order would have been public.

Scott Walshaw, commissioner of the Financial Institutions Division, defended the bill, saying it's the office's policy to disclose most things, such as consumer complaints filed against a company. He will answer an inquiry with the number of complaints but not what they involve.

He said consent decrees are not made public, even though they are the result of an investigation, because they are designed to correct problems. He said if the problems are not corrected, then formal disciplinary action is taken, which is made public.

Del Mar Mortgage was the case in point. It was called on the carpet, signed a consent decree and agreed to pay $100,000. But when it didn't live up to the terms of the agreement, it was temporarily put under a conservator. That's when the public learned about the troubles.

"We use informal action against various licensees. If we disclosed every one of them, we would have bigger problems," Walshaw said. "We're willing to give them a chance to take corrective action."

If the disciplinary cases were disclosed, he said, the public perception may be affected.

Goldwater tends to agree with Walshaw. In some cases, he said, disclosure of the problems could reveal competitive secrets and possibly create undue alarm.

In the regulation of gambling, consent orders are handled differently. The state Gaming Control Board, when it finds problems, holds a confidential session with the license holder. If disciplinary action is warranted, a complaint is filed and is made public immediately. Consent agreements are also made public as soon as both sides sign it.

Meanwhile, AB72 is scheduled for a hearing before the Assembly Ways and Means Committee Tuesday. Both AB64 and AB72 have been approved by the Assembly Commerce and Labor Committee, and their financial impact must be reviewed.

Both raise fees on the mortgage broker industry, which until now had been exempt. The money would be used to increase staff in the offices of the attorney general, Financial Institutions and secretary of state.

Both bills face a potential veto by Gov. Kenny Guinn because of the new fees.

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