Investors miffed at regulators

People who lost millions of dollars on investments brokered at OneCap Mortgage wonder whether state regulators are getting soft on hard-money lenders such as OneCap.

There's no clear answer.

OneCap is among about 20 hard-money or private lenders in Nevada that solicit money from individual investors and use the money for loans secured by real estate. During the real estate boom, investors enjoyed double-digit interest rates on these loans but often complained about the way hard-money lenders managed the loans.

Two years ago, the Mortgage Lending Division and Financial Institutions Division fined OneCap for a long list of alleged violations, including origination of loans that were not secured by real estate. OneCap had no license to make such loans.

The two divisions later compromised with OneCap and lowered the amount of fines. The mortgage division fined OneCap $85,000 and the financial division fined it $35,000.

At the time, OneCap was managing about $400 million in real estate loans. Vince Hesser, who manages OneCap, estimates the total has dropped to about $200 million or $225 million. He counts about 1,000 investors in those loans.

Gil Bourdon, a retired semiconductor sales engineer in Henderson, is one investor in OneCap real estate loans.

"I think my greed got the best of me, even though my gut was telling me, 'Get out, get out,' " he said. "We're just ordinary people. We worked hard for our money, and we made a big mistake."

Hesser attributed OneCap's woes to the economy.

"We're in the worst real estate economy since the Great Depression," Hesser said. "It's a market issue. It's not that our company did anything different than any other company."

Hesser disputes state allegations that he violated regulations.

The mortgage division gave OneCap a 5 rating in its last examination, the equivalent of an F grade and the lowest possible score. A 5 score signals that a hard-money lender "demonstrated unsatisfactory compliance with applicable laws and regulations and that immediate remedial action is required," according to Nevada regulations.

The division declined to release a copy of the examination and didn't disclose the OneCap score, which was obtained from another source.

Under the rules, the commissioner may take possession of the business and assets of the mortgage broker with a 5 rating. Waltuch, however, has not sought to put OneCap into receivership, which appears to be a break from past practices.

At Nevada regulators' request, Harley Harmon Mortgage was turned over to a receiver in 1997.

A Clark County District Court judge later named a receiver for Interstate Mortgage Group at state officials' request. The Securities and Exchange Commission won a federal court order to put Global Express Capital into receivership. USA Capital, which was holding $962 million in assets for 6,000 investors, beat state regulators to the punch by filing for bankruptcy court protection in April 2006.

"In my opinion, the (mortgage division) should have taken control of OneCap's portfolio in 2007 and solicited suggestions from the lenders as to whom we thought would be the best receiver for us," Bob Day, one of the most outspoken investors at OneCap, said by e-mail. "The investors should have been permitted to control their own investments.

"Putting a receiver in place now will not be beneficial for the investors."

Some investors say that putting a busted hard-money lender into receivership or bankruptcy often has produced unsatisfactory results even when done early in the process.

In past receiverships and in the USA Capital bankruptcy, investors complained about the size of fees paid to lawyers and accountants. They objected to waiting for recoveries that are small fractions of the amount they invested.

The reasons for not putting OneCap into receivership are confidential, Joseph Waltuch, mortgage division commissioner, said in an e-mail.

"Each situation is reviewed on a case-by-case, individual basis," the commissioner said.

Waltuch doesn't believe that investors should be solely responsible for dealing with hard-money lenders through lawsuits for receiverships or involuntary bankruptcy petitions.

"(The division) is a regulatory agency, which is responsible for enforcing the laws and taking appropriate actions within the law to protect investors as much as possible," Waltuch said. "However, investors must also be diligent and protect themselves as well, and the division's actions do not negate the right of the investors to take independent action on their own behalf."

Waltuch in July allowed OneCap to service outstanding loans but prohibited it from originating new loans. In November, Waltuch ordered OneCap to stop all licensable activity but let the company keep its license.

However, a group of people closely associated with OneCap has established Royal Union Holding Co. and three similarly named companies to run business trusts that manage foreclosed properties for OneCap investors. Other hard-money lenders also have established business trusts to manage foreclosed property.

Hesser said he doesn't own the Royal Union companies and declined to say who does.

Heidi Williams, vice president of OneCap Mortgage, became president of two Royal Union entities. Michael Hesser, Vince Hesser's father, is manager of one Royal Union company and a director of another.

"OneCap has indicated to all investors that their affiliate company, Royal Union, will be holding all the documents in OneCap's portfolio," Day said.

Some investors, including Day, refuse to join Royal Union, because they want to retain control over their mortgage loan investments.

Vince Hesser said Royal Union is not forcing investors to join the business trust.

"They are free to choose whoever they want to choose," he said.

The mortgage division has no authority to regulate the Royal Union companies, Waltuch said.

Day said: "I, for one, do not understand how the (mortgage division) can permit an unaffiliated third party to take possession of all of the Lenders' confidential private and financial information.

"I do not see any reason why OneCap (investors) should have to ask Royal Union for our loan information. It would be helpful if the (mortgage division) would obtain this information and give it to the investors, so that we can try to salvage what remains."

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.