[Congressional Record Volume 143, Number 1 (Tuesday, January 7, 1997)]
[Extensions of Remarks]
[Page E39]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




             RURAL HOUSING LOAN SERVICING PRIVATIZATION ACT

                                 ______
                                 

                          HON. GARY A. CONDIT

                             of california

                    in the house of representatives

                        Tuesday, January 7, 1997

  Mr. CONDIT. Mr. Speaker, I rise today to introduce the Rural Housing 
Loan Servicing Privatization Act.
  Since 1988 the Congress has mandated that the Farmers Home 
Administration [FmHA], now the Rural Development Administration [RDA] 
establish an escrow accounting system for the section 502 single-family 
housing program. It is now 1997 and little progress has been made 
towards this goal. Since 1990, FmHA has been studying the benefits and 
advantages of centralizing and contracting out the section 502 program.
  A review of efforts to improve the delivery of the section 502 single 
family-housing program shows that the program is troubled by 
mismanagement, an unwieldy structure and inferior technology. by FmHA's 
own admission, it costs $20 million per year to maintain a system that 
inadequately monitors the program. Because this system cannot be 
redesigned to maintain a mortgage escrowing program, the agency must 
pay an additional $20 million per year to voucher property taxes for 
borrowers. This practice is detrimental to both the borrower and the 
lender.
  In September of 1992, studies by the FmHA and GAO concluded that 
estimated operating savings could be around $106 million by making 
these reforms. Unfortunately, trivial action has been taken towards 
this end at a time when the Congress and the Federal Government are 
working towards reorganizing and streamlining Government.
  The Rural Housing Loan Servicing Privatization Act, will move this 
process along. This legislation would require the Secretary of 
Agriculture to implement centralized servicing in the section 502 
housing program by entering into contracts with entities ``qualified 
and experience conducting loan servicing.''
  One important aspect that this bill provides is competition between 
Federal Government and private entities for borrowers. Allowing private 
companies to compete for the borrowers currently serviced at the local 
level would fundamentally change the way the RDA does business. It 
could also mean reaping the benefits of the competitive marketplace, 
greater efficiency, increase focus on customer needs, and improving 
morale.
  Given the budget and fiscal restraints facing Congress, I believe now 
is the time for us to work towards the goal of Rural Housing Loan 
Servicing Privatization Act. By doing this we would lower delinquency 
rates, reduce loan losses, have escrow account ability, and lower 
operating costs.

                                 H.R.--

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Rural Housing Loan Servicing 
     Privatization Act''.

     SEC. 2. REQUIREMENT TO TRANSFER SERVICING OF SECTION 502 
                   LOANS.

       Section 502 of the Housing Act of 1949 (42 U.S.C. 1473) is 
     amended by adding at the end the following new subsection:
       ``(i) Transfer of Loan Servicing.--The Secretary shall 
     enter into contracts under section 510(k) providing for the 
     servicing of all loans made by the Secretary under this 
     section, to the extent entities qualified and experienced in 
     conducting loan servicing for residential mortgage loans are 
     available and agree to enter into such contracts.''.

     SEC. 3. ADMINISTRATIVE PROVISIONS

       Section 510 of the Housing Act of 1949 (42 U.S.C. 1480) is 
     amended--
       (1) in subsection (j) by striking ``and'' at the end;
       (2) by redesignating subsection (k) as subsection (l); and
       (3) by inserting after subsection (j) the following new 
     subsection:
       ``(k) enter into contracts (having such provisions as the 
     Secretary considers appropriate) with entities qualified and 
     experienced in conducting loan servicing for residential 
     mortgage loans to conduct the servicing for loans made by the 
     Secretary under this title, which shall provide for such 
     entities to receive scheduled periodic payments from 
     borrowers pursuant to the terms of loans, including amounts 
     for any escrow accounts, and making payments of principal and 
     interest and such other payments with respect to the amounts 
     received from borrowers as may be required pursuant to the 
     terms of loans and may provide for such entities to retain a 
     fee for servicing from loan payment amounts received; and''.

                          ____________________