Mortgage industry regulation urged by lawmakers

CARSON CITY -- If the mortgage industry regulation bill senators are now considering had been a law five years ago, there's a good chance fewer people would have lost money in Las Vegas' Harley Harmon investment scheme, a state official told a Senate panel Tuesday evening.

Certainly the portions of Assembly Bill 64 -- nicknamed the Harley Harmon Bill -- that regulate how much power "power of attorney" means in the hands of a mortgage banker or broker would have made a significant difference, said Scott Walshaw, State Financial Institutions Division commissioner.

"In this case, if there had been this bill, it would've been more difficult, if not impossible, for Mr. Harmon to do what he did," Walshaw told members of the Senate Commerce and Labor Committee.

No charges were filed in connection with the practices of the Harley L. Harmon Mortgage Co., in which Las Vegas investors reportedly were taken for millions.

Assemblyman David Goldwater, D-Las Vegas, led a legislative subcommittee on an exhaustive journey through the company's complicated business ventures.

Investigators discovered many abuses, including making investments without investors' knowledge or consent, abusing powers of attorney and failure to keep adequate records or make disclosures of risks involved in the investments, he said.

"People lost upwards of $23 million, most of which has to date not been recovered," Goldwater said. "We found some weaknesses in the statute. We found some weaknesses in the regulations, and we found weaknesses in the enforcement."

The laws are not clear as to who should investigate and prosecute such crimes in Nevada, the assemblyman 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 criminal jurisdiction over the matter, he said.

"Nobody was culpable," Goldwater said. "Their license was revoked, but there was no culpability."

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

It outlines disciplinary actions, sets maximum fines of up to $10,000 and classifies violations as major or minor ones. It also restricts powers of attorney to one note and one transaction, and sets forth massive disclosure regulations in which potential risks, an investor's position in the return on investment pecking order and other information is made available.

For 18 months the Harmon company was missing payments to financial institutions and being investigated by state officials, Goldwater said, yet the company continued collecting money from new investors.

"Nobody knew what was going on. Nobody knew this company was in trouble with the state," Goldwater said.

AB64 also includes more stringent licensing requirements and outlines the minimum net worth a mortgage banker or broker must have in order to do business.

"They need to have more than a post office box at Mail Boxes Etc. They need to have some assets, so if they do commit a crime, there's something to go after," Goldwater told the Senate panel.

State attorney general's officials have said they would need almost $500,000 to hire people for the new investigations load. Walshaw has said he will need about $130,000 over the next two years to add the needed staff.

The committee's hearing adjourned early Tuesday evening and will convene again later today for more testimony.

archive