Mortgage Lending Commissioner Joseph Waltuch was giving the public an opportunity to comment on a proposed settlement agreement with Compass Partners, a New York private equity firm that bought the right to service about 50 loans made by USA Capital.

USA Capital solicited money from investors and used the money to make short-term secured loans to developers. For years, investors received double-digit interest rates on these USA Capital loans. But USA Capital became insolvent and filed for bankruptcy court protection in April 2006. About 6,000 investors who entrusted USA Capital with $962 million were stunned.

Compass later won an auction with a $67 million bid for ownership interests in some USA Capital loans and the right to service other loans.

Compass originally relied on USA Capital to service the loans because USA Capital was licensed in Nevada as mortgage broker. Compass applied for its own Nevada license but withdrew the application, saying it would service the loans from New York.

The Mortgage Lending Division issued a cease-and-desist order, claiming that Compass operated in Nevada without a license on several occasions last spring. Compass did not admit to any violations of Nevada law but offered to pay Nevada $14,000 for expenses related to the investigation in return for dismissal of the administrative case.

Attorney Stanley Parry and investors who rely on Compass for loan servicing urged Waltuch not to drop the matter.

"They need to expand the investigation beyond that time frame," Parry said during a hearing recess. "We're asking for a more thorough investigation."

Waltuch said he will look at documents submitted by some of the witnesses and make his decision later.

Compass representatives made no comments during the hearing.

Parry cited Compass' handling of the Standard Property loan as an example of issues investors have with Compass. An investor claimed that the borrower offered to pay investors all of the $9.6 million in principal amount of the loan prior to Compass taking over loan servicing. Compass later negotiated an offer to accept a payoff for 90 percent of the principal from Standard.

Compass was accused of keeping $859,000 in default interest and fees from Standard without disclosing the arrangement before investor approval of the loan settlement agreement.

Terry Helms, an investor in USA Capital loans, quoted U.S. District Judge Robert Jones' comments about Compass loan servicing. Compass failed to disclose all the facts needed to make informed decisions, didn't communicate with investors and allegedly violated its fiduciary duty to investors, Jones said.

"I don't see that they have been doing anything for the (loan investors)," Helms said.

Investor Lee Novak complained that the state had failed to adequately regulate hard money lenders like USA Capital. If the commissioner allows unethical people to "get away with what they are doing, you are adding to the problem," Novak said.

"I would like to have a team to line these people up against the wall," Novak said, "and shoot them."

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