MINUTES OF THE
SENATE Committee on Commerce and Labor
Seventy-second Session
June 1, 2003
The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 2:00 p.m., on Sunday, June 1, 2003, 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 Warren B. Hardy II, Vice Chairman
Senator Ann O'Connell
Senator Raymond C. Shaffer
Senator Michael Schneider
Senator Maggie Carlton
STAFF MEMBERS PRESENT:
Scott Young, Committee Policy Analyst
Kevin Powers, Committee Counsel
Laura Adler, Committee Secretary
OTHERS PRESENT:
Sydney H. Wickliffe, CPA, Director, Department of Business and Industry
James L. Wadhams, Lobbyist, Mortgage Bankers Association of Nevada
John M. Vergiels, Lobbyist, Nevada Association of Mortgage Brokers
Kenneth T. Scruggs, Lobbyist, Household Financial Group
Chairman Townsend:
We will now open the meeting on Assembly Bill (A.B.) 490. This bill had a substantial amendment from the Assembly side, and we had a proposed amendment (Exhibit C) as a result of discussions in this committee. This is an important issue regarding mortgage lending, and one sensitive to growth issues in southern Nevada.
ASSEMBLY BILL 490 (3rd Reprint): Makes various changes relating to escrow agencies, mortgage brokers, mortgage agents and mortgage bankers. (BDR 54-998)
Sydney H. Wickliffe, CPA, Director, Department of Business and Industry:
I am not as well versed on the details of the bill as others, but I will do my best to answer any questions.
I am in support of this bill, and look forward to its passage. I think it is much needed and necessary legislation.
Our department has taken a neutral stance on the proposed amendment (Exhibit C). It is for other interested parties to decide. In amending the language, reference to whom is responsible for determining the certification standards has been removed from item 2 of the proposed amendment.
Chairman Townsend:
Kevin Powers, Committee Counsel, would you give us insight on the implications of this proposed language, and does it create a problem?
Mr. Powers:
This language is taken directly from suggested language from a party interested in proposing this amendment. It does not specify whether or not the course ultimately has to be approved by the commissioner. So, without that specification, it is unclear as to whether or not the commissioner would ultimately make the determination.
Chairman Townsend:
Would you like that authority?
Ms. Wickliffe:
Yes, I would.
Chairman Townsend:
Do you want the authority left with the Division of Financial Institutions (DFI), with the new commissioner of mortgage lending, or would you like it with the Department of Business and Industry (DBI)?
Ms. Wickliffe:
The commissioner of mortgage lending.
Chairman Townsend:
You have been through the amendment? We have the third reprint of the bill. Does the third reprint include the Assembly’s amendment?
Scott Young, Committee Policy Analyst:
That is Amendment No. 961, and the third reprint does include the Assembly amendment.
Senator Neal:
Could someone go through the bill with the proposed amendment (Exhibit C) and tell us what the proposed changes do?
Chairman Townsend:
Ms. Wickliffe. You might want to keep all your staff alerted on the last weekend of the session. No matter what their plans or where they are, they need to be within earshot of this building. These are large and important issues and we do not want you, or the Governor’s office, or any members of an industry, or the public at large at risk, in case we have a problem and need an answer. So, please keep that in mind.
James L. Wadhams, Lobbyist, Mortgage Bankers Association of Nevada:
The State regulates lending activities of two kinds of entities in particular covered by this bill. The mortgage brokers who put together applications and have them funded, the actual lending is done someplace else, but they put the packages together. The other is what is called mortgage companies. The bill would change their name to mortgage banks. Those are people that lend their own capital. Historically, those would include consumer finance companies, small loan companies, and the like. What they are trying to do is create a new agency, separate from the DFI that will be specifically dedicated to regulating mortgage lending. At one point in time we had separate agencies regulating mortgage companies, credit unions, and savings and loans that were consolidated. The attempt is to break back out of financial institutions a stand-alone agency to regulate mortgage lending.
For the record, we support the third reprint of the bill. It clarifies some ambiguities in the existing law about companies that claimed to be exempt, but should not have been. This makes it clear they are not.
The organization I represent opposes section 3 of the proposed amendment (Exhibit C), because it reverses the policy decision the Assembly made that federally qualified mortgage bankers should continue to be exempt from repetitive State regulation. As to the other sections of the proposed amendment (Exhibit C), there already was a discussion of item 2, on continuing education.
There are others who could be affected by items 4 and 5 of the proposed amendment. It may have some complications in requiring continuing education of individuals who are officers of lenders that may not be resident in Nevada. I think there are some mechanical problems. We are opposed to this proposed amendment; particularly item 3. We can support the third reprint of the bill as it is.
John M. Vergiels, Lobbyist, Nevada Association of Mortgage Brokers:
What I can do is repeat what Leo Davenport, President, Nevada Mortgage Brokers, said when he testified at the hearing on May 28, 2003, on this bill; which was Nevada citizens had no recourse with exempt companies when they reported unsavory practices to financial institutions. The institutions told the consumer they did not have any authority over those companies. That included such things as “flipping.”
It is a clear policy issue, further than that, you include the exempt companies under this new commissioner or rather you allow some of them out from under the umbrella. Testimony on some of the most terrible cases were cases where financial institutions could do nothing about it because they were exempt. At this point we are asking you to consider including them all under the auspices of the new commissioner.
Chairman Townsend:
Do you have any idea who you would choose for commissioner if this passes?
Ms. Wickliffe:
I would enter into an interview process after widely advertising the position.
Chairman Townsend:
This is a major change, but if we are going to do this, could you find someone who can solve the problem? We do not need an administrator; we need a “junkyard dog.”
Ms. Wickliffe:
I had not planned on including the term, “junkyard dog” in the ad, but I do understand the problems this industry faces. I agree we do need someone who understands the industry well.
Chairman Townsend:
Where are you going to locate them?
Ms. Wickliffe:
I am leaning to Las Vegas because there is a lot more activity. The majority of examiners would be there. One examiner in the Carson City area should be able to cover the northern Nevada entities.
SENATOR NEAL MOVED TO DO PASS A.B. 490.
SENATOR CARLTON SECONDED THE MOTION.
Senator O'Connell:
The problem was those approved by the Federal National Mortgage Association (FNMA/Fanny Mae) as seller and server. Could there have been problems, and the FNMA regulations were not on top of them? Can someone tell me how that works before we take the vote?
Mr. Wadhams:
Previous testimony identified an element of lending referred to in the industry as “net branches.” Those entities claim to be federally qualified as a net branch of someone who is federally qualified. Those net branches unfairly compete against the licensed mortgage brokers. The language in the third reprint of the bill limits it to those who are directly qualified or their wholly-owned subsidiaries. The net branch was where the abuse occurred, and this bill makes it clear no net branch is exempt. The way the bill is written, it completes the regulatory scheme and picks up the net branches that are identical in every other respect to a mortgage broker, except they claim to have the status, but do not.
Senator O'Connell:
The net branch brings everyone under?
Mr. Wadhams:
Everyone is either regulated by the State or qualified in some way with the federal government such as a national bank or its affiliates.
Senator O'Connell:
I am thinking someone who owns the home office in Arizona with a branch in Nevada, and they are claiming to be exempt. Can someone clarify for me?
Kenneth T. Scruggs, Lobbyist, Household Financial Group:
We are a licensed mortgage company under the laws of the State of Nevada. We have not opted to any federal affiliation or anything we have on the federal level. Our concern is we do not see the need to be regulated by two separate agencies within Nevada. The problem is not that we need another agency; it is the existing agency is not doing what you would like it to do. We do not object to being licensed and regulated by the State, and have always tried to respond to any complaints. We support the third reprint of the bill.
Senator O'Connell:
Does this give you an unfair advantage as far as other companies are concerned?
Mr. Scruggs:
Not at all. It means some companies that have not been regulated would now have to be regulated and conform to the same laws we do.
Senator O'Connell:
Ms. Wickliffe, this bill as it is printed without the proposed amendment (Exhibit C), do you feel you have the authority to reach out to financial institutions in the State and make them comply with any problems or complaints?
Ms. Wickliffe:
Yes. We are satisfied with the third reprint.
Chairman Townsend:
I support the bill and prefer the amendment. It is not that I want anyone doubly regulated in terms of their responsibility to fill out forms or pay taxes. This industry has been problematic in the past and I want the State, because we are closer to the people, to be able to respond in case there is an issue. My concern is if the bill passes without NRS 645E covered. We will keep an eye on it over the next 2 years, and if needed bring that discussion back to this committee.
Senator O'Connell:
That was the basis of my last question. Perhaps we could ask for a report to the interim commission to follow the effectiveness of the law, then we would know if there were something more needed.
Chairman Townsend:
I would like it noted that Senator O'Connell, Senator Carlton, and myself serve on the interim commission, and expect the new commissioner be brought to us when they are appointed, and hear our concerns and what we want them to look at, and report back to us.
Mr. Vergiels:
If it gets to the point of the proposed amendment (Exhibit C), I would like the part on education for the Nevada Association of Mortgage Brokers, the national association, kept in the bill.
Chairman Townsend:
Mr. Wadhams, I believe your testimony was an objection to item 3 of the proposed amendment (Exhibit C)?
Mr. Wadhams:
Yes sir.
Chairman Townsend:
I do not know if that changes the maker of the motion or the second of the motion, but it should be noted.
Senator Hardy:
I am committed to the third reprint of the bill, but I understand what you are saying and that causes me concern. I think Senator O'Connell’s suggestion is good, and I would also consider an amendment on the Senate Floor, if someone wanted to pursue it.
Senator Carlton:
When Senator Neal made the motion, I had a question about the education component that Mr. Powers answered, and I would like that answer heard by the rest of the committee.
Mr. Powers:
On page 20 of the third reprint is where the answer is found. Beginning on line 15. As you see it talks about the definition of certified course of continuing education, and there are two certified courses. One is certified by the National Association of Mortgage Brokers, and that is in (a). If you look at lines 23 and 24, “Any organization designated for this purpose by the Commissioner by regulation.” So, the commissioner can designate to the Nevada Association of Mortgage Brokers as an organization that can certify continuing education. So, it could accomplish the same purpose as the amendment stated, the proposed amendment stated on the document.
Mr. Vergiels:
The director indicated the language was okay, and had no objection to our language being used, and I request the motion include that.
Chairman Townsend:
It would say instead of, “Any organization designated for this purpose by the Commissioner by regulation.” it would say, “certified to the standards of the Nevada Association of Mortgage Brokers or any successor in interest to that organization to ensure the quality and content of the course.” Is that what you are saying?
Mr. Vergiels:
The piece missing is it does not say the commissioner has the ultimate authority, and it should say that.
Chairman Townsend:
The bill says beginning on line 16, page 20, “means a course of continuing education which relates to the mortgage industry or mortgage transactions and which is certified by: The National Association of Mortgage Brokers or any successor in interest to that organization; or Any organization designated for this purpose by the Commissioner by regulation.” That is pretty broad. Am I misreading it? Do you want it to say, “the standards of the Nevada Association of Mortgage Brokers or any successor?” Are you saying you want to narrow it to that?
Mr. Vergiels:
Yes.
Senator Neal:
I think the language on page 20 of the bill is sufficient authority to the commissioner to adopt by regulation. If there are any difficulties arising, they should be presented to the commissioner.
THE MOTION CARRIED UNANIMOUSLY.
*****
Chairman Townsend:
If there is an issue regarding this amendment or any component therein, Committee, I will leave it to your discretion to bring it to the Senate Floor.
There being no further business, the meeting is adjourned at 2:21 p.m.
RESPECTFULLY SUBMITTED:
Laura Adler,
Committee Secretary
APPROVED BY:
Senator Randolph J. Townsend, Chairman
DATE: