[Congressional Record Volume 148, Number 130 (Monday, October 7, 2002)]
[House]
[Pages H7024-H7027]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
MORTGAGE SERVICING CLARIFICATION ACT
Mr. ROYCE. Mr. Speaker, I move to suspend the rules and pass the bill
(H.R. 163) to amend the Fair Debt Collection Practices Act to exempt
mortgage servicers from certain requirements of the Act with respect to
federally related mortgage loans secured by a first lien, and for other
purposes, as amended.
The Clerk read as follows:
H.R. 163
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 ``Mortgage Servicing
Clarification Act''.
SEC. 2. MORTGAGE SERVICING CLARIFICATION.
(a) In General.--The Fair Debt Collection Practices Act (15
U.S.C. 1692 et seq.) is amended--
(1) by redesignating section 818 as section 819; and
(2) by inserting after section 817 the following new
section:
``Sec. 818. Mortgage servicer exemption
``(a) Exemption.--A covered mortgage servicer who, whether
by assignment, sale or transfer, becomes the person
responsible for servicing federally related mortgage loans
secured by first liens that include loans that were in
default at the time such person became responsible for the
servicing of such federally related mortgage loans shall be
exempt from the requirements of section 807(11) in connection
with the collection of any debt arising from such defaulted
federally related mortgage loans.
``(b) Definitions.--For purposes of this section, the
following definitions shall apply:
``(1) Covered mortgage servicer.--The term `covered
mortgage servicer' means any servicer of federally related
mortgage loans -secured by first liens--
``(A) who is also debt collector; and
``(B) for whom the collection of delinquent debts is
incidental to -the servicer's primary function of servicing
current federally related -mortgage loans.
``(2) Federally related mortgage loan.--The term `federally
related mortgage loan' has the meaning given to such term in
section 3(1) of the Real Estate Settlement Procedures Act of
1974, except that, for purposes of this section, such term
includes only loans secured by first liens.
``(3) Person.--The term `person' has the meaning given to
such term in section 3(5) of the Real Estate Settlement
Procedures Act of 1974.
``(4) Servicer; servicing.--The terms `servicer' and
`servicing' have the meanings given to such terms in section
6(i) of the Real Estate Settlement Procedures Act of 1974.''.
(b) Clerical Amendment.--The table of sections for the Fair
Debt Collection Practices Act (15 U.S.C. 1692 et seq.) is
amended--
(1) by redesignating the item relating to section 818 as
section 819; and
(2) by inserting after the item relating to section 817 the
following new item:
``818. Mortgage servicer exemption.''.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
California (Mr. Royce) and the gentleman from Texas (Mr. Bentsen) each
will control 20 minutes.
The Chair recognizes the gentleman from California (Mr. Royce).
General Leave
Mr. ROYCE. Mr. Speaker, I ask unanimous consent that all Members may
have 5 legislative days within which to revise and extend their remarks
and insert extraneous materials into the Record on this legislation.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from California?
There was no objection.
Mr. ROYCE. Mr. Speaker, I yield myself such time as I may consume.
I rise today in strong support of my bipartisan legislation, H.R.
163, the Mortgage Servicing Clarification Act. This carefully written
legislation addresses a specific problem for consumers and businesses
involved in the mortgage servicing industry by simply clarifying the
existing law governing mortgage servicing. This uncontroversial bill
enjoys the support
[[Page H7025]]
of 12 cosponsors, eight Democrats and four Republicans, and has been
approved for consideration under the suspension of the rules by both
the chairman and the ranking member of the Committee on Financial
Services.
Mr. Speaker, I introduced this bill to fix a problem in the mortgage
servicing industry which has hampered the ability of this industry to
serve its clients effectively and to conduct its business efficiently
for too long. Currently, when a mortgage servicing company acquires the
rights to service a portfolio of home loans, it is exempt from the
unnecessary strictures of the Fair Debt Collection Practices Act under
the creditor exemption that was also extended to the originator of the
mortgage.
The new mortgage servicer is extended this exemption because its
relationship to the borrower is more like the relationship between a
borrower and a lender than it is like the relationship between a
borrower and a true collections agency. The law already recognizes this
reality.
However, in the typical loan servicing portfolio transfer, a small
percentage of the loans acquired by a new servicer will inevitably be
delinquent or technically in default at the time of transfer. These
loans are currently treated by the law as being subject to the Fair
Debt Collection Practices Act; and subsequently the new servicers of
these loans are required to provide certain form notices, known as
Miranda warnings, to the borrower. The law also currently requires that
in every subsequent contact, both written and oral, whether initiated
by the servicer or the borrower, the servicer is required to provide a
shorter, mini-Miranda notice disclosing that the communication is ``an
attempt to collect a debt'' and that any information provided by the
borrower will be used toward that end.
The purpose of these cookie-cutter warnings is to prevent
unscrupulous debt collectors from using false or misleading tactics,
such as a phony winning sweepstakes claim, to trick consumers into
divulging private financial information or personal details like their
home address or their home phone number. The Fair Debt Collection
Practices Act has worked extremely well in preventing bad actors in the
debt collection business from using lies and deceit to harm consumers,
and this legislation would in no way prevent it from continuing to
protect American consumers. However, as I have already mentioned,
mortgage servicers are not like debt collectors. Their role to
consumers is much more like that of a mortgage originator. And in the
context of a mortgage servicing transfer, these Miranda notices are
both detrimental to consumers and unnecessary and inefficient for
mortgage servicers' operations.
First, the notice misleads the borrower about the nature of the
relationship between him or her and the new servicer. Unlike true debt
collectors, mortgage servicers have a long-term relationship with their
client, and these harshly worded notices often have the effect of
discouraging a borrower who is slightly late on a mortgage payment from
contacting their new servicer for fear that the servicer is a true
third-party debt collector. This ends up frustrating the servicer's
efforts to work with delinquent borrowers on developing strategies to
bring their loans current and keep their credit ratings intact. A
mortgage servicer's biggest hurdle in helping delinquent borrowers to
help themselves is getting them on the phone, and these threatening
Miranda notices only contribute to that unnecessary fear without doing
anything to help the borrower. Additionally, the information protected
by the Miranda notice is information already in the servicer's
possession, so nothing new is truly protected by requiring these
additional legalistic and threatening notices be provided.
Finally, these warnings simply make consumers feel unnecessarily
defensive and antagonistic toward their new servicer during the first
step of their new association, which can have a chilling effect on the
rest of their relationship. Mortgage servicers typically send these
Miranda notices along with a new customer's welcome letter as required
by the Real Estate Settlement Procedures Act, and this letter also
includes important consumer information about the new servicer and the
borrower's monthly payment arrangements. This preliminary contact is
the first opportunity that a servicer has to create a positive
relationship with a new client, and the harsh language used in the
Miranda warning can create animosity between the servicer and the
borrower where none need exist.
Additionally, because the mini-Miranda is required in all subsequent
contacts, they can continue for decades, even after customers bring
their loans current and keep them that way for years. H.R. 163 resolves
this problem by creating a narrow exemption from Miranda notices for
the servicers of federally related first lien mortgages whose primary
function is servicing current loans, not collecting third-party debts.
It exempts these servicers only from the Miranda notices, leaving all
other borrower protections required by the Fair Debt Collection
Practices Act in place.
This legislation is consistent with a longstanding recommendation
from the Federal Trade Commission to improve the mortgage servicing
process. I urge my colleagues on both sides of the aisle to support
this bipartisan legislation to improve the mortgage servicing process
for both the consumer and for the companies who serve them.
Mr. Speaker, I reserve the balance of my time.
Mr. BENTSEN. Mr. Speaker, I yield myself such time as I may consume.
(Mr. BENTSEN asked and was given permission to revise and extend his
remarks.)
Mr. BENTSEN. Mr. Speaker, I rise today in strong support of H.R. 163,
the Mortgage Servicing Clarification Act of 2002. As an original
sponsor of the bill, along with the gentleman from California (Mr.
Royce), I want to personally thank both the gentleman from Ohio (Mr.
Oxley) and the gentleman from New York (Mr. LaFalce), chairman and
ranking member of the Committee on Financial Services, for their
support and help in bringing this bill before the House on an expedited
basis. I believe that this technical bill is necessary in order to
protect both consumers and mortgage servicers.
The Fair Debt Collection Practices Act of 1977 is a consumer
protection statute which was established in order to protect consumers
from deceptive and abusive practices by third-party debt collectors.
Under the Fair Debt Collection Practices Act, debt collectors are
required to give certain notices to debtors regarding the nature and
amount of the delinquent debt. The original intent of this notice was
to ensure that the debtor understood why the collector was calling and
what was owed.
While I believe that both consumers and debt collectors have
benefited from this law, it has proven cumbersome for mortgage
servicers who do not necessarily seek to call the note or debt. Under
the act, collection activities by the original creditors were generally
exempt from the FDCPA; however, third parties such as debt collectors
were generally considered to be covered and are required to provide
such written or oral communications to consumers. These notifications
are generally referred to as Miranda warnings to the consumers.
The reason for the bill before the House is to determine whether
mortgage servicers would be considered as third parties.
{time} 1130
In the mortgage market, mortgages are bought and sold on a regular
basis in order to provide liquidity for lending and better rates for
borrowers. In some cases originators will keep loans on their books but
will decide to sell the servicing rights to other parties.
This legislation was developed in response to a growing concern that
some mortgage servicers were unclear as of whether these transfers were
covered by the FDCPA and what the appropriate communication should be
between the mortgage servicer and the consumer. Under current law when
a mortgage servicer acquires the right to service a loan, the mortgage
servicer is generally exempt from complying with the FDCPA because the
act extends the creditor's exemption to the new servicer. However, in a
typical loan-servicing transfer, a certain percentage of loans will be
delinquent or in default at the time of the transfer. Even with good
due diligence by the mortgage servicer there is always a possibility
that a person will be in default with
[[Page H7026]]
their mortgage at the time of the transfer.
H.R. 163 would resolve this problem by providing a narrow exemption
from the FDCPA by clarifying that this exemption only applies to a
mortgage servicer who acquires responsibility for servicing the
mortgage by assignment, sale, or transfer. Under this exemption a
mortgage servicer would not be required to provide a Miranda warning to
those specified defaulted loans.
In addition, in order to protect consumers, this exemption only
applies in those cases when the loan is actually in default at the time
of the transfer. This means that the exemption is narrowly drawn so as
to affect a small number of mortgages.
In addition, this bill ensures that this exemption only applies to
collection activities in connection with these specified loans. As a
result, a mortgage servicer cannot use his exemption with respect to
other loans which may be in default after the transaction occurs.
I also want to point out that this legislation was modified from its
original form to address every concern of consumer rights. As
introduced, H.R. 163 would have provided an exemption for those
mortgage servicers whose collection of delinquent debts is incidental
to the servicer's primary function of servicing federally related
mortgage loans.
It is interesting to note that this ``incidental to servicer's
primary function'' was a suggestion by the Federal Trade Commission in
order to clarify that mortgage servicers are exempt from the FDCPA.
Both the 2000 and 2001 FTC annual report on the FDCPA include a
legislative recommendation with this language.
After discussion with consumer groups and other public policy
advocates, we determined that this exemption appeared overly broad and,
as a result, we agreed to amend the bill to limit the exemption to only
those loans which were delinquent at the time of transfer. This
amendment will ensure that only a small number of loans will be covered
by the exemption.
I also want to highlight that this bill does not provide an exemption
from other substantive borrowers' rights. Rather, this exemption is
narrowly drawn to apply only to the Miranda warning which third-party
debt collectors are required to give to consumers.
This bipartisan legislation is supported by the Consumer Mortgage
Coalition, the American Financial Services Association, the Mortgage
Bankers Association, and the Financial Services Roundtable. I urge my
colleagues to support the bill.
Mr. Speaker, I reserve the balance of my time.
Mr. ROYCE. Mr. Speaker, I yield 5 minutes to the gentleman from
Alabama (Mr. Bachus), the distinguished chairman of the Subcommittee on
Financial Institutions and Consumer Credit.
Mr. BACHUS. Mr. Speaker, this bill which the gentleman from
California (Mr. Royce) has introduced has broad support and that is
bipartisan support. It also has broad cosponsorship from both sides of
the aisle. The bill has been modified from an earlier version which was
in the 106th Congress to address concerns raised by consumer groups.
Now the Consumer Mortgage Coalition has endorsed the bill, as has the
American Financial Services Association and the Mortgage Banking
Association. They all support this legislation.
The bill is drafted to be consistent with the previous
recommendations by the Federal Trade Commission to apply the Fair Debt
Collection Practices Act protections based on the nature of the overall
business conducted by the party to be exempted, rather than the status
of individual obligations when the party obtained them.
H.R. 163 is even narrower than the FTC recommendation. It only
exempts mortgage servicers from the Miranda notices required by Section
8071 on original first lien Federal-backed mortgages. All other
borrower protections provided by the Fair Debt Collection Practices Act
remain in full force.
And, finally, just to show the bipartisan nature of this effort, I
want to read to a letter, just a part of a letter, explaining why the
Miranda warnings are clearly appropriate for third-party debt
collection activities but that they actually put borrowers at greater
risk in mortgage service transfers and impair the ability of the new
mortgage servicer to establish a strong customer relationship. This
letter is from the gentleman from Texas (Mr. Bentsen), the gentleman
from Connecticut (Mr. Maloney), the gentleman from Pennsylvania (Mr.
Kanjorski), the gentlewoman from New York (Mrs. Maloney), the gentleman
from California (Mr. Sherman), the gentlewoman from Ohio (Mrs. Jones),
the gentleman from Texas (Mr. Gonzalez), the gentlewoman from Indiana
(Ms. Carson), the gentleman from Tennessee (Mr. Ford) and the gentleman
from New York (Mr. Meeks), all Democrats, all members of the Committee
on Financial Services.
Here is what they say about the present state of the law and why this
bill is needed. They gave three reasons.
One, the present Miranda notice misleads the borrower about the
nature of the new servicer's relationship. The most important thing a
delinquent mortgage borrower can do is call his or her servicer to
discuss working out options. The harshly worded Miranda actually
discourages borrowers from contacting their new servicer out of fear
that the company is simply another debt collector.
Second reason, the notice ``protects borrowers from providing
information that the mortgage servicer already has in its possession.
Mortgage servicers already possess detailed information about the
borrower in the loan files. There is no need for the servicer to engage
in deceptive tactics to obtain information from the borrower.''
Third, the notice hurts customer relationships for the remaining term
of the mortgage. The mini Miranda is required in all subsequent
contacts with the borrower even after customers have brought their
loans current and maintained them that way for years.
Let me simply close by saying that what this committee heard is, many
times, a person's mortgage servicer would change. That mortgage would
be assigned and that person would get a telephone call from someone who
had to identify themselves as a debt collector. The mortgage might be
up, it may be current. They would have to warn the person that they
were trying to collect a debt and that they were a debt collector. In
fact, what they were and, in fact, in reality they are, is they were
the person's mortgage servicer, and as opposed to avoiding them, what
you ought to be doing is talking with them, letting them answer
questions and establishing a new relationship.
In the original act, I think it was inadvertent that these Miranda
warnings were applied to someone servicing a person's mortgage. This
legislation will go a long way towards clearing up this confusion and
protecting people who have mortgages.
Mr. BENTSEN. Mr. Speaker, I have no other requests for time, and I
yield back the balance of my time.
Mr. ROYCE. Mr. Speaker, I yield myself such time as I may consume.
I thank my colleague from Texas (Mr. Bentsen) who is the cosponsor of
this legislation. I also want to thank the gentleman from Alabama (Mr.
Bachus), again, the chairman of the Subcommittee on Financial
Institutions and Consumer Credit.
Mr. Speaker, I would just like to close by reiterating that this bill
is a narrowly tailored bill that enjoys strong bipartisan support and
the long-time support of the Federal Trade Commission. This legislation
is a commonsense, consumer-friendly fix to the law, to the law that
currently governs the mortgage servicing process that has been cleared
for consideration under the suspension of the rules by both the
gentleman from Ohio (Mr. Oxley), chairman, and by the gentleman from
New York (Mr. LaFalce).
It does not sacrifice or alter any of the meaningful protections
afforded to consumers by the Fair Debt Collection Practices Act. Rather
than, it creates a narrow exemption for mortgage services whose primary
function is servicing current mortgage loans, not the third-party
collection of debt, from having to threaten their newest and most needy
customers with a legalistic and misleading pro forma notice.
The law as it is currently written prevents these at-risk consumers
from building strong relationships with their mortgage servicers,
putting those consumers whose mortgages may be uncharacteristically
later delinquent at the time that they are acquired at a distinct
disadvantage. The exemption that this legislation creates is already
[[Page H7027]]
extended to mortgage originators and those loans that are current at
the time they are acquired by a new servicer. This legislation simply
recognizes that the relationship between a mortgage servicer and a
customer more closely resembles the relationship between a mortgage
originator and a consumer than the relationship between a consumer and
a third-party debt collector.
So, Mr. Speaker, I urge all of my colleagues to stand up for
consumers and help to increase the efficiency of the mortgage servicing
industry by supporting this commonsense and bipartisan legislation.
Mr. Speaker, I yield back the balance my time.
The SPEAKER pro tempore (Mr. Upton). The question is on the motion
offered by the gentleman from California (Mr. Royce) that the House
suspend the rules and pass the bill, H.R. 163, as amended.
The question was taken; and (two-thirds having voted in favor
thereof) the rules were suspended and the bill, as amended, was passed.
A motion to reconsider was laid on the table.
____________________