Mortgage Servicing Clarification Act

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.

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.

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.

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,

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. Speaker, I yield 5 minutes to the gentleman from Alabama (Mr. Bachus), the chairman of Subcommittee on Financial Institutions and Consumer Credit.

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.

Mr. Speaker, I yield back the balance of my time.

Mr. Speaker, on that I demand the yeas and nays.

Mr. Speaker, last week Colorado experienced a very heavy snowstorm--in fact, it was a blizzard in many areas. This was good news for our state, which has been suffering from a serious drought. However, it seriously interfered with travel. As a result, I was unable to be present for votes on several measures. Had I been present, I would have voted as follows:

On rollcall No. 65, H. Con. Res. 26--Condemning the punishment of execution by stoning as a gross violation of human rights--I would have voted ``yes.''

On rollcall No. 66, H.R. 868--Nicaragua Property Dispute Settlement Act of 2003--I would have voted ``yes.''

On rollcall No. 67, H. Res. 109--Urging passage of a resolution addressing human rights in North Korea at the 59th session of the United Nations Commission on Human Rights, and calling on the Government of North Korea to respect and protect the human rights of its citizens--I would have voted ``yes.''

On rollcall No. 68, H.R. 314--Mortgage Servicing Clarification Act (Royce Financial Services)--I would have voted ``yes.''

On rollcall No. 69, H.R. 417--Cibola Wildlife Refuge Boundary Correction--I would have voted ``yes.''

On rollcall No. 70, H.R. 699--To direct the Secretary of the Interior to conduct a comprehensive study of the Rathdrum Prairie/Spokane Valley Aquifer, located in Idaho and Washington--I would have voted ``yes.''

On rollcall No. 71, the Sherman amendment to H.R. 975 (bankruptcy bill), I would have voted ``no.''

On rollcall No. 72, the Nadler amendment in the nature of a substitute to H.R. 975 (bankruptcy bill), I would have voted ``yes.''

On rollcall No. 73, the Jackson-Lee motion to recommit H.R. 975 (bankruptcy bill), I would have voted ``yes.''

On rollcall No. 74, passage of H.R. 975 (bankruptcy bill), I would have voted ``no.''

On rollcall No. 75, on approving the Journal, I would have voted ``no.''

On rollcall No. 76, H.R. 1307--To amend the Internal Revenue Code of 1986 to provide a special rule for members of the uniformed services in determining the exclusion of gain from the sale of a principal residence and to restore the tax exempt status of death gratuity payments to members of the uniformed services, and for other purposes-- I would have voted ``yes.''

On rollcall No. 77, H. Res. 132--Expressing the sense of the House that the 9th Circuit Court of Appeals ruling in Newdow v. United States Congress is inconsistent with the Supreme Court's interpretation of the first amendment and should be overturned, and for other purposes--I would have voted ``present.''

I would have voted that way because I am not a lawyer and have not studied the relevant decisions of the Supreme court--and so I do not think it would be appropriate for me to say that the cited decision of the Court of Appeals is inconsistent with those decisions.

Last year, I voted in favor of a related (but not identical) resolution. However, as I said at that time, I did so not because I necessarily agreed that the Circuit Court's decision is ``inconsistent with the U.S. Supreme Court's First Amendment jurisprudence'' as that resolution said, but because I agreed that ``the Ninth Circuit Court of Appeals should agree to rehear'' the matter, as that resolution also stated.

I am proud to recite the Pledge of Allegiance because I personally consider it as being neither a prayer nor a religious practice and so think its recitation is not a religious exercise but instead a verbal expression of support for our country. However, obviously not everyone shares my view. And, as I said last year, I am not prepared to conclude that the author of the Ninth Circuit decision--a long-serving judge originally appointed by President Nixon--was clearly wrong as a matter of law, even though as I understand it another appeals court, in a similar case, has ruled differently. So, I definitely think the issue needs to be resolved by the Supreme Court.

On rollcall No. 78, the Hill (Blue Dog) substitute to the budget resolution, I would have voted ``yes.''

On rollcall No. 79, the Toomey (Republican Study Committee) substitute to the budget resolution, I would have voted ``no.''

On rollcall No. 80, the Cummings (Black Caucus/Progressive Caucus substitute to the budget resolution, I would have voted ``no.''

On rollcall No. 81, the Spratt (Democratic) substitute to the budget resolution, I would have voted ``yes.''

On rollcall No. 82, on passage on H. Con. Res. 95 (the budget resolution), I would have voted ``no.''

On rollcall No. 83, passage of H. Con. Res. 104--expressing the support and appreciation of the Nation for the President and the members of the Armed forces who are participating in Operation Iraqi Freedom--I would have voted ``yes.''

I would have done so because although I have disagreed with the way the President has handled the diplomatic events leading up to war, it is now time for us all to support our brave men and women in uniform who are charged with carrying out this mission and to pray for their success and safe return home. We all hope for a swift resolution with minimal casualties--among our troops and Iraqis as well. And we must do more to protect ourselves at home. I am confident that the United States and our allies will win the war. That will not be the end, but the beginning of the more difficult task of securing the peace. Congress must commit to providing aid to rebuild Iraq and the Administration must work to repair relationships with our allies. We will need them and the rest of the international community in our corner to rebuild Iraq, bring stability to the Middle East, and win the war on terrorism.

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. Speaker, I have no additional requests for

time, and I yield back the balance of my time.

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.