Bill Offers FDCA Help

The House has passed a bill by a 420-0 vote that would provide mortgage servicers a special exemption from the Fair Debt Collection Act so that they can work with delinquent borrowers in a less hostile way.

The bill (H.R. 314), sponsored by Rep. Edward Royce, R-Calif., would extend an FDCA exemption enjoyed by lenders to servicers that could cover situations where a servicer is taking over a new portfolio of mortgage servicing rights and some of the borrowers are delinquent.

If adopted by the Senate, it would prevent some servicers from being classified as a debt collector when they try to work with the delinquent borrowers.

Under the bill, a servicer would not have to provide those borrowers with FDCA notices about being a debt collector and warning the borrower that any information they provide can be used against them.

The Mortgage Bankers Association refers to these FDCA notices as "Miranda warnings" that the police are required to give suspected criminals prior to questioning.

"Rather than protecting delinquent borrowers in a transfer, the harshly worded Miranda warnings actually disrupt the establishment of a healthy borrower-servicer relationship and hamper the ability to achieve a workout with the borrower. H.R. 314 would correct this problem," the MBA said in a notice to its members.

The exemption only applies to servicers who engage primarily in servicing performing mortgages and where the collection of debt is incidental to the servicing of the loans.

Apparently, this exemption would not cover servicing companies that specialize in acquiring delinquent loans.

The outlook for Senate action is unclear. Recent news stories about servicing problems at Fairbanks Capital Corp., Salt Lake City, are likely to make some senators wary of a bill like H.R. 314. (See related story on Fairbanks.)

One lobbyist noted that the complaints about Fairbanks' servicing practices relate to allegations of mishandling accounts and overcharging homeowners. "The servicing bill deals with an entirely different set of issues," he said.

In other legislative developments, the House has passed a bankruptcy reform bill by a 315-113 vote, but the snake-bitten measure faces a more turbulent ride in the Senate.

The bill (H.R. 975) would make it harder for consumers to use Bankruptcy Courts to walk away from credit card and auto loan debt.

For mortgage lenders, it contains provisions that cut through delaying tactics used in residential foreclosures and expedites foreclosures in single-asset commercial property bankruptcies.

The Mortgage Bankers Association supports the bankruptcy bill. "The provision that removes the $4 million cap on single-asset bankruptcies is very important to MBA's commercial members," said MBA chairman John Courson.

In the Senate, opposition from several Democrats is expected to delay consideration of the measure. The House easily passed the bill in the last two Congresses only to see some issue or circumstance jump up to kill it.

In other legislative news, the House Financial Services subcommittee on financial institutions has approved a regulatory relief bill (H.R. 1375) that includes a servicing provision.

The bill, sponsored by Reps. Shelley Moore Capito, R-W.Va., and Mike Ross, D-Ark., is aimed at eliminating unnecessary and outdated federal banking and thrift laws, including a statutory provision that caps the valuation of purchased mortgage servicing rights at 90% of market value.

This cap was originally designed to limit the amount of PMSRs that could be counted toward a bank's capital. The regulatory relief bill would eliminate the cap and federal regulators would be free to raise the valuation of servicing rights from 90% up to 100%. The full committee will probably markup the bill in May.

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