BILL ANALYSIS C.S.H.B. 725 By: Combs April 25, 1995 Committee Report (Substituted) BACKGROUND Currently, mortgage lenders transfer the servicing of the real estate loans without notice to the borrower. Consumers are often unaware of the transfers and sometimes do not even have the proper address of the new servicer in order to make timely payments on the loan. PURPOSE This bill would require a lender to give notice to the borrower of the transfer of the servicing of the borrower's real estate loan contract. The bill only applies to residential real estate loans. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1. Title 132, Revised Statutes, is amended by adding Article 9029 as follows: Sec. 1. DEFINITIONS. Sec. 2. APPLICATION. This article applies to loans secured by residential real property or loans not subject to 12 U.S.C. Section 2605, as amended. Sec. 3. NOTICE OF TRANSFEROR OF LOAN SERVICING AT THE TIME OF TRANSFER. (a)The servicer of a loan shall notify the borrower in writing of any transfer of the servicing of the loan to another person (b) not later than the 15th day before the effective date of the transfer except (c) if the transfer of the servicing of the loan is preceded by (1) the termination of the contract for servicing the loan for cause; (2) commencement of proceedings for bankruptcy of the servicer; or (3) commencement of proceedings by the FDIC or the RTC for conservatorship or receivership of the servicer or an entity by which the servicer is owned or controlled, in which case the borrower must be notified no later than the 30th day after the effective date of the transfer. (d) states that subsection (b) and (c) do not apply to a transfer of the servicing of a loan if the person who makes the loan provides the borrower, at settlement with respect to the property for which the loan is made, written notice of the transfer. (e) sets forth what must be included in the notice: (1) effective date of transfer; (2) name, address, and toll-free or collect call phone number of the transferee servicer; (3) a toll-free or collect call telephone number for an employee of the transferor or the department of the transferor service which may be contacted by the borrower with any questions relating to the transfer of the servicing; (4) a toll-free number of an employee of the transferee servicer or a department of the transferee servicer which may be contacted by the borrower; (5) the date on which the transferor service will cease to accept payments relating to the loan and the date on which the transferee will begin accepting payments; (6) information on optional insurance available or actions the borrower must take to maintain the optional insurance; and (7) a statement the transfer of the servicing of the loan does not affect any term or condition of the security instruments other than terms directly related to the servicing of the loan. Sec. 4. NOTICE BY TRANSFEREE OF LOAN SERVICING AT TIME OF TRANSFER. The requirements are identical to the requirements for the transferor and the notice must include information in 3(e). Sec. 5. TREATMENT OF LOAN PAYMENTS DURING TRANSFER PERIOD. During the 60 day period beginning on the effective date of the transfer, a late fee may not be imposed on the borrower with respect to a loan payment. Additionally, a payment may not be treated as late for any other purposes, if the payment is received by the transferor servicer before the due date of the payment. Sec. 6. NOTE EVIDENCING LOAN. States that this article applies only to the transfer of the servicing of a loan and does not require a person to give notice of the transfer of a note evidencing the loan to another holder. If the borrower requests the name and address of the person who is holder of the note and who evidences the loan, the servicer must provide the information not later than the 10th day after the request. Sec. 7. OFFENSE. A person violating this article commits an offense punishable by a fine not to exceed $1,000. SECTION 2. Effective Date: September 1, 1995. SECTION 3. Emergency Clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The original bill required that the lender notify the borrower of the intent to transfer a loan and gave the borrower an opportunity to pay off the loan buy at the discounted amount the lender would have received for the loan from another purchaser. The substitute removes the opportunity for the borrower to pay off the loan and only requires that the borrower be notified of the transfer not later than the 15th day before the effective date of the transfer or not later than the 30th day after the effective date if the transfer of the servicing of the loan is preceded by (1) the termination of the contract for servicing the loan for cause; (2) commencement of proceedings for bankruptcy of the servicer; or (3) commencement of proceedings by the FDIC or the RTC for conservatorship or receivership of the servicer or an entity by which the servicer is owned or controlled. The substitute sets forth what information must be included in the notice. The substitute states that during the 60 day period beginning on the effective date of the transfer, a late fee may not be imposed on the borrower with respect to a loan payment. Additionally, a payment may not be treated as late for any other purposes, if the payment is received by the transferor servicer before the due date of the payment. The substitute makes it an offense to violate this article punishable by a fine not to exceed $1,000. The substitute clarifies that the notification requirement applies only to the transfer of the servicing of a loan and does not require a person to give notice of the transfer of a note evidencing the loan to another holder. However, if the borrower requests the name and address of the person who is holder of the note and who evidences the loan, the servicer must provide the information not later than the 10th day after the request. SUMMARY OF COMMITTEE ACTION The committee considered HB 725 in a public hearing on March 6, 1995. The following people testified in favor of the bill: Rep. Combs; and Homer L. Biggerstaff representing himself. The following people testified against the bill: Joan Gillett representing Life Savings Bank; Gary J. Davis representing Homeowners Mortgage & Equity, Inc.; Robert C. Duke representing Texas Financial Services Assn.; John Heasley representing the Texas Bankers Association; and Clay B. Carson representing the Texas Mortgage Bankers Association. The bill was left pending. The committee considered HB 725 in a public hearing on April 3, 1995. The bill was left pending. The committee considered HB 725 in a public hearing on April 19, 1995. The committee considered a complete committee substitute for the bill which was adopted without objection. The bill was reported favorably as substituted, with the recommendation that it do pass and be printed, by the following record vote: 5 Ayes, 0 Nays, 0 PNV, 4 Absent.