[Congressional Record Volume 149, Number 43 (Tuesday, March 18, 2003)]
[House]
[Pages H1921-H1923]
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. 314) 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.
  The Clerk read as follows:

                                H.R. 314

       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 New York (Mr. Meeks) 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 
on H.R. 314.
  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 5 minutes.
  Mr. Speaker, I rise in strong support of this bipartisan legislation, 
H.R. 314. This is the Mortgage Servicing Clarification Act, which I 
have introduced with my colleague, the gentleman from Pennsylvania (Mr. 
Kanjorski).
  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 strong bipartisan support 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 abilities of this industry to 
serve its clients effectively and to conduct its business efficiently 
for too long.

                              {time}  1515

  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 a 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 phone number.
  The Fair Debt Collections Practices Act has worked extremely well in 
preventing bad actors in the debt collections 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 herself 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 was 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 notices 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 where none need exist.
  Additionally, because the mini-Miranda is required in all subsequent 
contacts, they can continue for decades,

[[Page H1922]]

even after customers bring their loans current and keep them that way 
for years.
  H.R. 314 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 substantive borrower protections 
required by the Fair Debt Collections Practices Act in place.
  This legislation is consistent with the long-standing 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. MEEKS of New York. Mr. Speaker, I yield myself such time as I may 
consume.
  I rise today in strong support of H.R. 314, the Mortgage Servicing 
Clarification Act. As an original cosponsor of the bill, I would like 
to thank the gentleman from Pennsylvania (Mr. Kanjorski) for his 
leadership on this bill. My thanks also go to the lead Republican 
sponsor of this legislation, the gentleman from California (Mr. Royce), 
who worked on a bipartisan basis to bring this bill to the floor.
  I also want to thank the gentleman from Ohio (Mr. Oxley), the 
chairman of the Committee on Financial Services, and the gentleman from 
Massachusetts (Mr. Frank), the ranking member, and the other cosponsors 
of the bill from both sides of the aisle for their support and help for 
bringing this bill to the House floor.
  The bill before us is largely technical in nature and seeks to 
address a change in market practices not anticipated by the original 
Fair Debt Collections Practices Act. This act is a consumer protection 
statute which was established in order to protect consumers from 
deception and abusive practices by third-party debt collectors.
  Under the FDCPA, debt collectors are required to give certain notices 
to debtors regarding the nature and the amount of the delinquent debt. 
The original intent of this notice was to ensure the debtor understood 
why the collector was calling and what was owed.
  Under the act, collection activities by the original creditors were 
generally exempt from the FDCPA. However, third parties such as debt 
collectors are generally considered to be covered and are required to 
provide such written or oral communications to consumers. These 
notifications are generally referred to as the Miranda warnings to 
consumers.
  The reason for the bill before the House is to distinguish between 
mortgage servicers and third-party debt collectors. In the mortgage 
market, mortgages are bought and sold on a regular basis in order to 
provide liquidity for lending and better rates for the 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 whether these transfers were 
covered by the FDCPA and what the appropriate communication should be 
between the mortgage servicer and the consumer. H.R. 314 would clarify 
this problem by providing a narrow exemption from the requirement to 
provide Miranda warnings under the FDCPA for a mortgage servicer who 
acquires responsibility for servicing mortgage by assignment, sale or 
transfer. Under this exemption, a mortgage servicer would not be 
required to provide a Miranda warning for any loan that is actually in 
default at the time of the transfer of servicing rights. 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 this exemption with respect to 
other loans which may become in default after the transfer occurs.
  I also want to highlight the fact 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.
  I urge my colleagues to support this 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 chairman of Subcommittee on Financial 
Institutions and Consumer Credit.
  Mr. BACHUS. Mr. Speaker, I want to first commend the gentleman from 
California (Mr. Royce) for introducing this bill. This bill was 
actually introduced in the last Congress by the gentleman from 
California and passed almost unanimously. He has enlisted broad support 
for this bill, both in the committee and from the rank and file. It is 
also a bill which has bipartisan support. It has people who have 
sponsored it from both sides of the aisle.
  It was 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. 314 is actually even narrower than the FTC recommendation. It 
only exempts mortgage servicers from the Miranda warnings 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.
  I want to read a portion of a letter explaining why the Miranda 
warnings are clearly appropriate for third-party debt collection 
activities, but they are actually inappropriate for the type of 
situation addressed in this bill, and that is where a new servicer 
comes in and takes over the mortgage and the mortgage is in default.
  What the letter says, first of all, is that by requiring these 
Miranda warnings, it actually does two things. It puts borrowers at 
greater risk in mortgage servicing transfers, and two, it impairs the 
ability of the new mortgage servicers to establish a strong customer 
relationship.
  This letter was drafted by the gentleman from Pennsylvania (Mr. 
Kanjorski), has a signature of the gentlewoman from New York (Mrs. 
Maloney), the gentleman from California (Mr. Sherman), the gentlewoman 
from Ohio (Mrs. Jones) and the gentleman from New York (Mr. Meeks). Of 
course, the gentleman from New York (Mr. Meeks) is a cosponsor of the 
bill. These are all Democrats and all members of the Committee on 
Financial Services. They say this about the present state of the law 
and the need for this legislation which the gentleman from California 
(Mr. Royce) is offering.
  One, the present Miranda notice misleads the borrower about the 
nature of the new servicers' relationship. The most important thing a 
delinquent mortgage borrower can do is call his or her servicer to work 
out options. The harshly worded warnings actually discourage borrowers 
from contacting the new servicer out of the fear that the company is 
simply another debt collector.
  Two, 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.''
  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 the customers have brought their 
loan current and maintained them that way for years.
  In closing, as the gentleman from New York said earlier, mortgages 
now are transferred. They are assigned. They are bought. It is a normal 
course of action in a businessplace. When this happens, people need to 
know whether they are dealing with a debt collector or with their 
mortgage servicer. This new law will allow that.
  So I would urge the membership to endorse this bill with a strong yes 
vote.
  Mr. MEEKS of New York. Mr. Speaker, I have no additional requests for

[[Page H1923]]

time, and I yield back the balance of my time.
  Mr. ROYCE. Mr. Speaker, I yield myself the remaining time.
  In closing, I urge all my colleagues to stand up for consumers and 
help to increase the efficiency of the mortgage servicing industry by 
supporting this common-sense and bipartisan legislation.
  I would, again, like to thank the coauthor of this legislation, the 
gentleman from Pennsylvania (Mr. Kanjorski), and thank the gentleman 
from New York (Mr. Meeks) and thank the gentleman from Alabama (Mr. 
Bachus) for their comments.

                              {time}  1530

  Mr. ROYCE. Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore (Mr. Petri). 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. 314.
  The question was taken.
  The SPEAKER pro tempore. In the opinion of the Chair, two-thirds of 
those present have voted in the affirmative.
  Mr. ROYCE. Mr. Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX and the 
Chair's prior announcement, further proceedings on this motion will be 
postponed.

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