[Congressional Record (Bound Edition), Volume 148 (2002), Part 14]
[House]
[Pages 19259-19262]
[From the U.S. 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 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.

[[Page 19260]]

  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. 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 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

[[Page 19261]]

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 
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

[[Page 19262]]

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.

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