MINUTES OF THE

SENATE Committee on Commerce and Labor

 

Seventy-First Session

May 31, 2001

 

 

The Senate Committee on Commerce and Laborwas called to order by Chairman Randolph J. Townsend, at 8:13 a.m., on Thursday, May 31, 2001, in Room 2135 of the Legislative Building, Carson City, Nevada.  The meeting was video conferenced to the Grant Sawyer Office Building, Room 4406, 555 East Washington Avenue, Las Vegas, 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 Dean A. Rhoads

Senator Mark Amodei

Senator Raymond C. Shaffer

Senator Michael A. (Mike) Schneider

Senator Maggie Carlton

 

GUEST LEGISLATORS PRESENT:

 

Assemblyman David E. Goldwater, Clark County Assembly District No. 10

 

STAFF MEMBERS PRESENT:

 

Scott Young, Committee Policy Analyst

Gayle Nadeau, Committee Secretary

 

OTHERS PRESENT:

 

Raymond Williams, Lobbyist, President, Nevada Association of Mortgage Brokers

Cathy Jackson Ford, Branch Manager, Mortgage Options

Doug Walther, Chief, Office of Business Finance and Planning, Department of             Business and Industry

Robert Barengo, Lobbyist, Nevada Consumer Finance Association

 

Mark Krueger, Deputy Attorney General, Division of Financial Institutions,             Department of Business and Industry

Robert Bryant, Deputy Attorney General, Division of Financial Institutions,             Department of Business and Industry

 

Chairman Townsend opened the hearing on Assembly Bill (A.B.) 324. 

 

ASSEMBLY BILL 324:  Revises various provisions regarding regulation of mortgage brokers, mortgage agents and mortgage companies. (BDR 54‑491)

 

Senator O’Connell stated for the record her son is a mortgage banker.  Senator Townsend also stated for the record, “The bank on which I sit as a board member and shareholder owns a mortgage company.”

 

Raymond Williams, Lobbyist, President, Nevada Association of Mortgage Brokers, said he supported A.B. 324.  Mr. Williams stated A.B. 324 contains solutions for mortgage products.  The principle component of the bill is the establishment of a mortgage commission to work in concert with the Department of Business and Industry in regulating mortgage brokers, he said. 

 

Continuing, Mr. Williams said he had amendments for A.B. 324 (Exhibit C).  Going through the proposed amendments, Mr. Williams explained section 8, subsection 3 would change the 3-day notice of meetings to 15 days of notice.  The next change, section 13, would add the wording:  “Until such time as set forth in section 96,” he said.  Mr. Williams stated the changes in section 28, subsection 1, paragraph (d), and section 28, subsection 2, paragraph (e), would add education for loan agents, loan officers, and mortgage brokers, which is one of the key components.  The change in section 31 would alter the wording of “shall” to “may.”  “This allows the state or commission the option of using, or not using, a certified public accountant (CPA) for state audits,” stated Mr. Williams.  Section 33 changes the time frame from 60 days to 90 days to turn in yearly audits, he said.  Continuing, Mr. Williams said section 39, subsection 2, changes the disclosure form to apply only to the private investor loans.  The change to section 40 would alter the language to read:  Money invested through a mortgage broker is not guaranteed to earn any interest or return and is not insured.  Mr. Williams said the change in section 40 would apply only to advertisements for private investor funds, and is not intended for mortgage brokers.  Section 44, subsection 3, would require mortgage agents to register yearly, he said.  And, section 44, subsection 3, paragraph (a), subparagraph (4), would add continuing education.  He noted in section 44, subsection 3, paragraph (a), subparagraph (5), number (4) is changed to (5), since something else is being inserted in number (4).  Finally, add to Nevada Revised Statutes (NRS) 645A.174, a requirement for escrow agents to check for mortgage broker licenses or mortgage company license, because of out-of-state companies closing loans in Nevada without a Nevada license. 

 

Cathy Jackson Ford, Branch Manager, Mortgage Options, stated another reason the title companies were asked to verify who is doing closing loans is because the process gives financial institutions a list of what the mortgage companies have closed, and they do their audit based on the information provided.  Continuing, Ms. Ford said, “If someone is crooked and they are closing loans, and not putting money through their bank account, then the state would never know it, because they are doing the audit based on what the mortgage company told them.”   

 

Senator Carlton asked for clarification as to whether the fiscal note was still intact.

 

Ms. Ford replied the fiscal note was eliminated based on the idea the mortgage brokers were willing to increase their fees, accordingly, to support the commission.

 

Senator Carlton asked if the commission would be self-funded as a board would be.  Ms. Ford answered that is how the commission will work.  Senator Carlton noted there was no public member on this commission, whereas many of the boards and commissions the committee has established have public members, and asked for the reasoning.

 

Mr. Williams responded that he would not be opposed to the idea of a public member, and added, presently, this commission is being patterned after the Real Estate Commission.

 

Senator Carlton asked how much each member would pay to fund the commission.

 

Mr. Williams suggested funding would come from loan officer registrations.  Right now loan officers pay $70, a one-time fee, and it is suggested it become a $100 annual fee, which would produce and annual revenue of $350,000 to $400,000, he said.  Mr. Williams added, general licensing and examination fees would also help to fund the commission. 

 

Senator Carlton queried, assuming this is all right with the membership, would the commission have the ability to fine?

 

Mr. Williams responded the commission would have the ability to fine and retain the fines.

 

Ms. Ford added the collected fines have gone into an account, and there is an excess of funds sitting there.  She indicated the way financial institutions are run, there is a lot of information not passed on to the overall industry.  Ms. Ford requested her prepared statement be added to the record (Exhibit D). 

 

Senator Townsend asked Ms. Ford about two issues referenced in her handout (Exhibit D).  Senator Townsend questioned, “Are they encapsulated in particular sections?”  Ms. Ford replied they are in sections 40 and 39, subsection 2. 

 

Senator Townsend stated the committee would like clarity on the issue of $600,000 in fines laying in an account.  He indicated the fines, traditionally, are put into the General Fund. 

 

Doug Walther, Chief, Office of Business Finance and Planning, Department of Business and Industry, replied the fines are deposited into the General Fund.  He said the reserve, which is currently in the General Fund, is made up of licensing fees charged to all the licensees under the jurisdiction of the division. 

 

Robert Barengo, Lobbyist, Nevada Consumer Finance Association, said when A.B. 324 was first introduced, chapter 645E of NRS, was contained within the bill.  He stated chapter 645E of NRS is a definition of mortgage companies, which are people who lend their own money.  And, because mortgage companies are different from the rest of the mortgage-brokering industry, the sections included in chapter 645E of NRS, were taken out of the bill, he said.  Mr. Barengo indicated bill drafting made an addition on page 10 of A.B. 324, section 27, subsection 3, which he said he believes are not clear.  The addition attempts to state that if someone is licensed in chapter 645E of NRS, then they are subject to the regulations of financial institutions, he said.  Mr. Barengo said he believes the way the language in the bill reads is not clear.  He suggested lines 26, 30, 31, and 32 be deleted.

 

Senator Townsend said there are two issues presented in A.B. 324, which is a concern of the industry about appropriate regulation.  Those issues are:  Is the commission the appropriate answer, and, if it is, is the proposed fiscal note large enough that it cannot be fixed?

 

Referencing the exhibit distributed to the committee (Exhibit E), Mr. Walther stated there are four reasons for the division’s opposition to the commission and they encompass both of the notions mentioned.

 

Continuing, Mr. Walther said his division questions the necessity for a commission to regulate the industry when the Division of Financial Institutions is performing the functions.  However, he said, his division is not against more or better regulations.  He pointed out to perform the functions through a separate commission, would involve duplication of effort, cost and expense.  Mr. Walther said, “To have the industry regulate itself, certainly that has been done in other areas such as, real estate.”  However, he added, there is reason to question the wisdom of such an approach in this instance.  He stated the real estate industry has been well organized for years, and the Real Estate Commission has been in existence for 30 years, plus a homogeneous private trade association represents it.  Mr. Walther said, in comparison, the mortgage industry is a much younger industry and is fractionalized.  It is not as homogeneous as the real estate industry and is not as well-represented.  He added, “It is not able to speak with a single voice the way the real estate industry does.”  Also, he said it is in the business of handling other people’s money in a way different than real estate agents, making it more susceptible to abuse. 

 

Continuing, Mr. Walther said another reason for the division’s opposition of the commission is because the cost estimate provided by the proponents of the bill is severely underestimated.  He added because of the department’s experience with the financial institutions division, he believes his estimate for the cost of the commission is accurate.  Mr. Walther stated, “It seems logical to conclude, when you are duplicating efforts, you cannot take out the expenses from the one agency and expect the same result with just that money.” 

 

Mr. Walther indicated the Assembly made it clear in their second amendment they expect any cost associated with the commission to be borne by the industry.  He added, there is insufficient evidence the majority of this industry supports paying the cost of the commission and regulation.  For example, he said, an exhibit handed out at the last hearing was a copy of a petition in support of the commission.  However, the petition said all or part of the fees would go to the commission, but did not say anything about increasing the fees.  He concluded there is going to have to be an increase of the fees. 

 

Mr. Walther said the division’s opposition is based on the commission concept.  The proposed amendments clarify that the money raised by the new commission would go into an account controlled by the commission, he said.  Also, clarification is made that the CPA is not going to perform all the examinations, just oversee the audits, and each licensee is going to be examined annually.  He added, the distributed exhibit (Exhibit E) includes a letter from the deputy attorney general, which also described some concerns of the bill’s policy questions.  Mr. Walther stated he wanted to make it clear the division is not against better regulation.

 

Senator Townsend asked, “If there is not a commission in this bill and there are some requests about increased regulation . . . why are they bringing this to us?” 

 

Mr. Walther said there have been problems with implementation of Assembly Bill 64 of the Seventieth Session.  He added a lot of what that bill did was restrict the discretion of the division in its manner of regulation.  It wanted certain things required, regardless of circumstances.  There were concerns about the inability to have flexibility in the regulation, and concerns about issues in A.B. 324 to clean up Assembly Bill 64 of the Seventieth Session, he said.

 

ASSEMBLY BILL 64 OF THE SEVENTIETH SESSION:  Revises provisions             relating to mortgage companies and loans secured by liens on real             property.  (BDR 54-1204)

 

He added, his division does not oppose the cleanup.  He emphasized they would be happy to talk to the industry about their concerns regarding the manner of regulation, but it has to be understood the division cannot write or change the law.

               

Mark Krueger, Deputy Attorney General, Division of Financial Institutions, Department of Business and Industry, stated there would be a financial impact on the Office of the Attorney General, and $30,000 is an inadequate amount for legal representation of the mortgage commission.  He explained the financial institutions division currently has three deputies, and the deputies would not have the capacity to take on more work.

 

Bob Bryant, Deputy Attorney General, Division of Financial Institutions, Department of Business and Industry, stated, “If any matter should proceed to a hearing in front of the mortgage commission there would be two attorneys required.”  Mr. Bryant said he wanted to emphasize that these matters can become very complicated investigations, and $30,000 is not at all adequate. 

 

Senator Amodei said he appreciated the comments of the deputy attorney general, “but $500 a week is not for the complicated matters that go on here, but we still must do it.”  He added, “There have been ongoing problems for the last few years, and doing nothing is not a option either.” 

 

Mr. Bryant responded we are not suggesting we do not want to help, but our only purpose is to state $30,000 is not sufficient.  He said the attorney general’s (AG) office is statutorily obligated to represent a board even if they cannot pay. 

 

Senator Amodei asked about the discussion of money in the finance committees.  Mr. Bryant replied the AG’s office had completed a fiscal note stating the $30,000 was not sufficient. 

 

Assemblyman David E. Goldwater, Clark County Assembly District No. 10, said the purpose of A.B. 324 is to create an analogous structure.  He stated he is interested in the soundness of the mortgage companies, and even more worried about the conduct of the brokers.  He added, “I think a self-governing organization is an ineffective means of governing poor conduct.” 

 

Assemblyman Goldwater said the fiscal questions were addressed in the Assembly Committee on Ways and Means.  He said, “They will develop a budget to take their responsibilities with them, and will come back to the Interim Finance Committee.”  The industry has indicated they will provide for the commission through their own fee revenue, he added. 

 

Senator Townsend said, “You have put in a lot of time and effort.  It is hard for the public to understand that these types of bills are a start of a process that needs to be monitored.”  Senator Townsend indicated he was unsure how to work through the concept of self-regulation.

 

Assemblyman Goldwater suggested financial institutions deserve credit for making Assembly Bill 64 of the Seventieth Session work.  He said, because of that bill there is now a criminal penalty in the law.  He said the laws implemented in A.B. 64 of the Seventieth Session, would not change because of A.B. 324, but would make the process move more quickly. 

 

Senator Townsend said he appreciated Assemblyman Goldwater’s constant monitoring of the industry.  He added, “I know the most important thing is to act timely in these issues.” 

 

Senator Townsend closed the hearing on A.B. 324, and adjourned the meeting at 9:19 a.m.

 

 

                                                                                        RESPECTFULLY SUBMITTED:

 

 

Heather Dion,

Committee Secretary

 

 

APPROVED BY:

 

 

                       

Senator Randolph J. Townsend, Chairman

 

 

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