Congressional Record, Volume 151 Issue 38 (Wednesday, April 6, 2005)

[Congressional Record Volume 151, Number 38 (Wednesday, April 6, 2005)]
[House]
[Pages H1791-H1794]
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. 1025) 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. 1025

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

[[Page H1792]]

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 a 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 Georgia (Mr. Scott) 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 to insert extraneous material in the Record on this bill.
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. 1025. This is the Mortgage Servicing Clarification Act, which I
have introduced with my colleague 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
noncontroversial bill enjoys strong bipartisan support. It 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 far 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 a relationship between a
borrower and a lender than like the relationship between a borrower and
a true debt collection 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. The law currently treats these loans
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 or other such
tactics, to trick consumers into divulging private financial
information or personal details like their home address or their phone
number.
The Fair Debt Collection 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 the 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.
Additionally, 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
toward the servicer where none need exist.
Finally, Mr. Speaker, 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.
This bill will resolve that problem.
Mr. SCOTT of Georgia. Mr. Speaker, I yield myself such time as I may
consume.
I rise today in strong support of H.R. 1025, the Mortgage Servicing
Clarification Act. I would like to thank my colleague 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 has worked in a very strong bipartisan way
to bring this bill to the floor. I commend him for that. I also want to
thank the chairman and ranking member of the Committee on Financial
Services, the gentleman from Ohio (Mr. Oxley) and the gentleman from
Massachusetts (Mr. Frank), and the other cosponsors of the bill from
both sides of the aisle for their support and help with bringing this
bill before the House.
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 Collection Practices Act, or FDCPA. The bill addresses a
conflict between the disclosure requirements of the Real Estate
Settlement Procedures Act, or RESPA, and

[[Page H1793]]

the Fair Debt Collection Practices Act, FDCPA. This conflict only
applies to a limited number of companies that act as both mortgage
servicers and collectors of mortgage-related debt.
Section 6 of RESPA requires that any entity that is assigned or
acquires servicing rights to a mortgage must notify the borrower of the
transfer of mortgage servicing. The new entity must identify itself as
the new loan servicer and disclose to borrowers that they have the
right to dispute or obtain additional information about the terms of
the debt being transferred.
Section 807, part 11 of FDCPA requires that any person seeking to
collect a debt must identify themselves in any initial communication as
a debt collector, identify the debt to be collected, and notify the
debtor of their right to validate the debt and other protections
provided by FDCPA. Since mortgage servicers often acquire servicing
rights for entire portfolios of loans, a number of loans are likely to
be in default at the time of transfer. Subsequent efforts by the
acquiring servicer to collect on the defaulted debts have at times been
thwarted on technical grounds with claims that the collection effort
violated FDCPA. This is so because the initial communication received
by the debtor was the notice of servicing transfer rather than the
required notice of debtor rights.
The compromise that was negotiated 3 years ago to address this
problem and which the House has previously passed under suspension
would create a narrow exemption from the requirement to provide a
notice of debtor rights under the FDCPA for a mortgage service who
acquires responsibility for servicing a mortgage by assignment, sale,
or transfer.

{time} 1300

Under this exemption, a mortgage servicer could not be held liable
for not providing a notice of debtor right 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 very
small number of mortgages.
Mr. Speaker, this is a fine bill. I urge support for H.R. 1025.
Mr. Speaker, I reserve the balance of my time.
Mr. ROYCE. Mr. Speaker, I yield such time as he may consume to the
gentleman from Alabama (Mr. Bachus), the chairman of the Subcommittee
on Financial Institutions and Consumer Credit.
Mr. BACHUS. Mr. Speaker, first of all, I would like to commend the
gentleman from California, who must feel like it is Ground Hog Day
because he has actually been out here two prior times on this bill. In
the 107th Congress, it passed by voice vote. In the 108th Congress, the
gentleman from California (Mr. Royce) was here, and his bill passed 424
to nothing, and yet it died in the other body, not because there was
opposition, but it simply got caught up in the paperwork. I want to
commend him on his persistence.
And he is doing this because without this bill, when a mortgage is
transferred or assigned or bought, there are always a few people who
are not only in default, but even those who are just simply delinquent,
behind on a payment, and it misleads those people into believing that
they are receiving a call from a debt collector who has to make
Miranda-like warnings, and when they do that, they have a tendency not
to talk to them.
And, in fact, and I will read a letter from some of our Democratic
colleagues who are also cosponsoring this bill, in fact, the very thing
that we would want these people to do is talk to their new mortgage
servicer and establish a relationship to work out of that default and
to work out of that delinquency, because there are actually rules that
these servicers are supposed to make every attempt to establish such a
relationship; yet the Fair Debt Collection Practices Act, it was not
meant to be. This was an unforeseen technicality in the interpretation.
So the FTC came to the Congress and enlisted the help of the
gentleman from California (Mr. Royce) to remedy this. Let me read the
letter because I think it says it very well. It was drafted by the
gentleman from Pennsylvania (Mr. Kanjorski), who has worked tirelessly
on this bill for the last two Congresses. It 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). These are all Democrats and all
members of the Committee on Financial Services.
They said this about the present state of the law and the need for
the gentleman from California's (Mr. Royce) legislation: One, the
present Miranda notice misleads borrowers 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 work out options. The
harshly worded warnings actually discourage borrowers from doing just
that, from contacting the new servicer out of 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
warning is required in all subsequent contacts with the borrower even
after the customer has brought their loan current and maintained them
for years. In other words, under the present state of the law, these
customers are treated for years to come as if they are delinquent or in
default, and that is an insulting thing when they have brought their
mortgages up to speed.
In closing, I will summarize the entire bill this way: In today's
market, Mr. Speaker, mortgages are transferred, they are assigned, they
are bought. And when that happens, those customers have a right to know
whether they are dealing with a debt collector or they are dealing with
their mortgage service provider, and that is a big difference. And this
law will actually allow that to happen.
So I commend the gentleman from Pennsylvania (Mr. Kanjorski), and I
commend the gentleman from California (Mr. Royce) particularly for his
diligence in this matter, and I would ask the Members of this body to
do what the last two Congresses have done, and that is unanimously
approve this legislation, which is truly bipartisan and ought to be a
model for this Congress as it works to do what is best for our citizens
without regard to political party.
Mr. SCOTT of Georgia. Mr. Speaker, I have no further 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 want to thank the gentleman from Alabama for his comments and in
conclusion just say the way in which H.R. 1025 resolves the problem
that we have discussed is that it creates a narrow exemption for
Miranda notices for the services 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 in place all other substantive borrower
protections required by the Fair Debt Collection Practices Act.
This legislation is consistent with the long-standing recommendations
from the Federal Trade Commission to improve the mortgage servicing
process, and 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 companies who serve them.
Mr. OXLEY. Mr. Speaker, I rise in support of H.R. 1025, the
``Mortgage Servicing Clarification Act,'' providing a narrow but
necessary exemption for mortgage servicers from certain requirements of
the Fair Debt Collection Practices Act (FDCPA) with respect to
federally related mortgage loans secured by a first lien.
I want to commend Congressman Royce and Congressman Kanjorski for
introducing this legislation, as well as Ranking Member Frank for
helping to guide this important measure through the legislative
process. This legislation passed by a voice vote in the 107th Congress
and passed last Congress on a vote of 424-0.
When a mortgage servicer acquires the right to service a loan
portfolio, the servicer is generally exempt from complying with the
FDCPA because the Act extends the creditor's exemption to the new
servicer. The problem arises because in a typical loan servicing
transfer, a percentage of the loans transferred are delinquent or in
default. These loans are technically covered by FDCPA provisions
requiring the new mortgage servicer to include harshly

[[Page H1794]]

worded notices to its borrowers identifying the servicer as a ``debt
collector'' and warning the borrower that any information he or she
discloses to the servicer will be used in the debt collection process.
These notices are commonly referred to as ``Miranda notices,'' and they
can have the unintended consequences of discouraging borrowers from
contacting their new service provider.
Under the exemption made by H.R. 1025, a mortgage servicer would not
be required to provide a Miranda notice upon the first contact with its
new customer, as well as in all subsequent contacts, on those loans
that were in default at the time of transfer. However, mortgage
services would not qualify for this exemption with respect to other
loans that may go into default after the transfer occurs.
Let me close by saying that this bill is drafted to be consistent
with previous recommendations by the Federal Trade Commission, the
agency charged with the enforcement of the FDCPA, and is supported by a
variety of financial services trade groups, including the Consumer
Mortgage Coalition, American Financial Services Association, and
Mortgage Bankers Association.
I urge my colleagues to support this bill.
Mr. KANJORSKI. Mr. Speaker, as the leading Democratic supporter of
H.R. 1025, I rise today in strong support of the Mortgage Servicing
Clarification Act. It is a good piece of legislation that will fix a
technical problem under existing law.
Under the current Fair Debt Collections Practices Act, when a
mortgage servicer acquires the rights to service a loan portfolio it is
generally exempt from complying with the law's requirements because the
act extends the creditor's exemption to the new servicer. In a typical
loan servicing transfer, however, a certain percentage of loans will be
delinquent or in default at the time of the transfer. These loans are
therefore technically covered by the Fair Debt Collection Practices
Act, even though the new servicer has a fundamentally different
relationship with the borrower than a true debt collector.
H.R. 1025 would resolve this problem by establishing a very narrow
exemption for servicers of first lien mortgages from the notice
requirements of the Fair Debt Collection Practices Act. All other
substantive borrower protections provided by the Fair Debt Collection
Practices Act would remain in full force. Additionally, the exemption
is available only to servicers that are primarily engaged servicing
current loans.
We worked for several years to narrow the exemption created by this
bill in order to address the concerns of all interested parties. The
legislation also passed the House in the 107th Congress and the 108th
Congress, and when we last passed this bill it was approved by a vote
of 424 to 0. I expect that we will again today pass this bill in the
109th Congress with similar bipartisan support.
In closing, Mr. Speaker, the provisions of H.R. 1025 are consistent
with longstanding recommendations by the Federal Trade Commission,
under the Clinton and Bush Administrations, to improve the application
of the Fair Debt Collection Practices Act to mortgage servicing
activities. I urge my colleagues to support this common-sense,
technical-fix legislation.
Mr. ROYCE. Mr. Speaker, I have no further requests for time, and I
yield back the balance of my time.
The SPEAKER pro tempore (Mr. Boozman). 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. 1025, 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.

____________________