The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:30 a.m., on Thursday, May 27, 1999, in Room 2135 of the Legislative Building, Carson City, Nevada. Exhibit A is the agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator Randolph J. Townsend, Chairman

Senator Ann O’Connell, Vice Chairman

Senator Mark Amodei

Senator Dean A. Rhoads

Senator Raymond C. Shaffer

Senator Michael A. (Mike) Schneider

Senator Maggie Carlton

STAFF MEMBERS PRESENT:

Scott Young, Committee Policy Analyst

John L. Meder, Committee Policy Analyst

Kevin C. Powers, Committee Counsel

Beverly Willis, Committee Secretary

OTHERS PRESENT:

SENATOR O’CONNELL MOVED TO DO PASS A.B. 673.

SENATOR CARLTON SECONDED THE MOTION.

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Chairman Townsend opened the hearing on A.B. 64.

Chairman Townsend emphasized the fiscal impact of A.B. 64 is the most important issue for discussion today. He averred the cost of civil investigations conducted by the Office of the Attorney General would be reimbursed from funds of the Division of Financial Institutions.

L. Scott Walshaw, Commissioner, Division of Financial Institutions, Department of Business and Industry, testified the original presumption was the licensing of mortgage agents would generate a reserve account, to be used to pay the attorney general costs associated with civil investigations.

Chairman Townsend commented on criminal investigations, which cannot be reimbursed by the division. He asked Douglas E. Walther, Commerce Section, Civil Division, Senior Deputy Attorney General, Office of the Attorney General, if the budget submitted by the Office of the Attorney General to the Assembly Committee on Ways and Means, included funding for a deputy attorney general to conduct criminal investigations. Mr. Walther replied he is waiting to hear from the financial officer for the office, and will advise the chairman when he has the answer.

Chairman Townsend requested Kevin Powers, Committee Counsel, Legal Division, Legislative Counsel Bureau, to ask Dan Miles, Senate Fiscal Analyst, Fiscal Division, Legislative Counsel Bureau, the status of a request for a new civil position in the Office of the Attorney General.

Mr. Walshaw averred that the suggested fee required under A.B. 64 for the licensing of a mortgage agent would cover the cost of a background check. Earlier discussion mentioned a fee of approximately $50, to pay for a credit report and a computer check for an arrest record and/or outstanding warrants.

Chairman Townsend explained that in a previous meeting the committee discussed a fee between $50 and $75, as opposed to the $750 initial fee, which appears in the bill.

Cindy Stephens, Owner, MCS Mortgage Company, recommended some education requirements be included in A.B. 64.

In answer to Chairman Townsend, Mr. Walshaw stated to include continuing education in the bill presents fiscal implications. To verify the continuing education of approximately 1,500 licensees would require considerable administrative time. Chairman Townsend recommended the Advisory Council on Mortgage Investments and Mortgage Lending, which is created by A.B. 64, draft continuing education regulations to be implemented after the legislative session.

Ms. Stephens suggested the consumer is best served if all loan agents are educated in the lending field. As the past president of The Association of Professional Mortgage Women, Ms. Stephens said continuing education would include ethics, fair-lending practices, best-lending practices, finance, and real estate law. The association conducts seminars on all of the subjects.

Chairman Townsend asked Mr. Walther what portions of A.B. 64 must be removed from the jurisdiction of the Office of the Attorney General if funding is not available. Mr. Walther said the office would likely need one full-time attorney, one full-time investigator and clerical staff in order to enforce the provisions of A.B. 64.

Rick Combs, Program Analyst, Fiscal Analysis Division, Legislative Counsel Bureau, testified about the positions requested by the Office of the Attorney General in order to enforce the criminal provisions of A.B. 64. He stated the Assembly Committee on Ways and Means did not receive clear information on the projected level of criminal prosecutions and, based on that, the committee felt the attorneys currently in the office could handle the workload for the interim. However, if necessary, the Office of the Attorney General could request additional staffing next legislative session. Mr. Combs added, on civil matters generated by A.B. 64, the Department of Business and Industry and the Office of the Attorney General were instructed to present a work program to the Interim Finance Committee during the interim, once the fees are in place to support the civil side.

Chairman Townsend discussed the level the Senate Committee on Commerce and Labor is willing to go regarding fees. He reiterated the approximate costs associated with the credit and background check is $50. In answer to the chairman, Mr. Walshaw said the original fiscal note, attached to A.B. 64, estimated the costs associated with a deputy district attorney as approximately $60,000 for the first year, and $79,000 for the second year. Chairman Townsend calculated that simply dividing 1,500 potential licensees into $60,000, the cost would be approximately $400 ($40) per licensee. Mr. Walshaw reminded the chairman to keep in mind the committee had moved away from any fee structure that may imperil a veto from the Governor. Mr. Powers informed the chairman the bill could simply say "actual cost and expense incurred by the division to investigate the background." If the actual expense were to increase, then the fee would increase. Mr. Walshaw said there is precedent for such language in current law.

Chairman Townsend turned the discussion to the power-of-attorney issue. Mr. Walther and Mr. Walshaw provided Exhibit C, which, Mr. Walshaw stated, addresses the concerns of all the parties. He asserted the most important parts of A.B. 64 are the power-of-attorney changes, and the improving of disclosure requirements.

Mr. Walshaw offered Exhibit D, a memo from Larry Hickman, CPA, Division of Financial Institutions, Department of Business and Industry. The exhibit was prepared to show that of the 374 licensed mortgage companies in Nevada, 11 handle investor and/or collection trust accounts. The exhibit proposes a sliding scale to describe the minimum net worth a licensed mortgaged company shall maintain, based upon their average annual trust account balance.

Chairman Townsend declared the committee must decide between a requirement of a net worth of $250,000, or a sliding scale as suggested in Exhibit D. If the committee desires a sliding scale, then the provision in A.B. 64 section 69 subsection 1, paragraph (a), "Is required to maintain any accounts described in NRS 645B.175, the mortgage broker and his mortgage agents shall not engage in any activity that is authorized pursuant to this chapter, unless the mortgage broker maintains continuously: . . ."a net worth of at least $250,000" would be removed.

Marty LeVasseur, State President, Nevada Association of Mortgage Brokers, testified he would like to put forward an alternative to suggested regulations concerning net worth. Instead of the Division of Financial Institutions releasing private data to an interested party, the division would issue a statement simply declaring the mortgage broker meets the net worth standards required by law.

Russell Best, Lobbyist, Home Financial Mortgage, believes a mortgage company should have a choice of using bonds, if they have insufficient net worth.

Chairman Townsend recommended the committee agree to Exhibit C, concerning powers of attorney.

Mr. Walther stated he is not clear on the subject of the criminal and civil positions for the Office of the Attorney General. Chairman Townsend explained the Assembly essentially recommended the office absorb the additional work at this time, and return to the Interim Finance Committee to report on the impact. Chairman Townsend asserted the Assembly ignored the civil issue. Mr. Walther requested committee consideration of an amendment to reduce the effect, since certain acts mandated under A.B. 64 would produce a substantive impact on the Office of the Attorney General.

Ms. Stephens asked how the advisory committee would be assembled. Mr. Walshaw answered there is model language existing for advisory councils in both of the collection agency and credit union statutes. Mr. Powers said draft provisions call for a five-member council, appointed by the Legislative Commission, from a list provided by the commissioner, Division of Financial Institutions, Department of Business and Industry.

Mr. Walther reiterated the impact of the removal of the use of discretion by the commissioner, Division of Financial Institutions, Department of Business and Industry mandated by section 78, subsection 4, paragraph (b) of A.B. 64. Mr. Walther declared if a violation is committed by a mortgages broker, the commissioner shall immediately take possession of the property of the mortgage broker. Mr. Young agreed with Mr. Walther’s interpretation, and added minor infractions could no longer be waived by the commissioner. Chairman Townsend suggested amending the paragraph to make it permissive.

SENATOR SCHNEIDER MOVED TO AMEND AND DO PASS A.B. 64

SENATOR RHOADS SECONDED THE MOTION.

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The meeting was adjourned at 10:15 a.m.

RESPECTFULLY SUBMITTED:

Cynthia Cook,

Committee Secretary

APPROVED BY:

Senator Randolph J. Townsend, Chairman

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