Mortgage Servicing Clarification Act

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.

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.

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. 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. 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. Speaker, I have no further requests for time, and I yield back the balance of my time.

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. 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

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.

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. Speaker, I have no further requests for time, and I yield back the balance of my time.

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

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. 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.