In the aftermath of the foreclosure crisis, the federal government wants mortgage companies to be proactive in reaching out to delinquent borrowers. At the same time, the Obama administration is also trying to protect U.S. consumers from unwanted calls to their cellphones.
Now those two goals are coming into conflict.
In a largely overlooked regulatory filing, the Federal Housing Finance Agency recently asked the Federal Communications Commission to carve out an exemption for the mortgage industry from strict rules on robo-calls.
The FCC prohibits auto-dialed calls to mobile phones except in cases where the call's recipient has given permission. But the FHFA says that those rules hamper the ability of mortgage servicers to assist homeowners who have fallen behind on their monthly payments.
"Avoiding foreclosure requires mortgage servicers to work directly with individual loan borrowers, typically through telephone contact," FHFA General Counsel Alfred Pollard wrote in a June 6 letter to the FCC. "The efficient and early resolution of a delinquency to avoid foreclosure is the key to ensuring a borrower does not lose his or her home."
The FHFA is seeking an exemption that would apply to residential mortgage servicers that are calling delinquent borrowers. It would cover not only the servicers of Fannie Mae and Freddie Mac-backed loans – the FHFA oversees the two government-sponsored mortgage giants – but other mortgage servicers as well.
The idea is being panned by a coalition of consumer advocacy groups; they say it would give a free pass to mortgage servicers that have a record of consumer-protection violations and would create a huge loophole in the federal law that shields Americans from unwanted phone calls.
"This is an alarming and fairly absurd proposal," the National Consumer Law Center wrote in a comment letter on behalf of various other consumer and legal aid organizations.
Sen. Sherrod Brown, D-Ohio, also questioned the FHFA's proposal in a statement emailed to American Banker: "I'm concerned that the FHFA is pushing to subject Americans to more computer generated phone calls and texts rather than ensuring servicers offer foreclosure alternatives."
But for industry groups that so far have been frustrated in their efforts to get carve-outs from the FCC's rules, the FHFA's recommendation provides a new opening.
Under the Telephone Consumer Protection Act, violators are liable to pay $500 to $1,500 for each unsolicited call. Those tough standards have led to a slew of class-action lawsuits, with banks paying more than $200 million to settle such cases in recent years.
Last July, the FCC issued strong new rules that mostly rejected the entreaties of financial firms and other corporations. Banks were not granted a break with respect to debt-collection calls.
But then in December, Congress passed a law that provides an exemption for the collection of government-owned debt. The new law states that when seeking to collect debt owed to or guaranteed by the U.S. government – such as federally backed student loans – the caller does not have to obtain the consumer's consent.
That change in federal law set the stage for the FHFA's recent recommendation to the FCC. In its letter, the housing finance agency acknowledged that the congressionally mandated carve-out does not appear to cover Fannie and Freddie mortgages. Nonetheless, the FHFA argued that the FCC should grant a broad exemption to servicers of delinquent residential mortgages.
In subsequent filings with the FCC, mortgage industry groups noted that various federal agencies require loan servicers to make specified efforts to contact delinquent borrowers. For example, the Consumer Financial Protection Bureau's servicing rules require telephone or in-person contact by the 36th day of delinquency.
"The sort of timely, real-time interaction that occurs on a telephone call is particularly important," the Mortgage Bankers Association said in a petition filed with the FCC. "Time is of the essence in loss mitigation efforts, and discouraging telephone contact creates obstacles to a borrower getting a modification or keeping his or her home."
But consumer advocates maintain that phone calls to delinquent homeowners do not have to be made with auto-dialing technology. "There's no right to make robo-calls," said Margot Saunders, an attorney with the National Consumer Law Center.
Saunders also argued that the FCC lacks the legal authority to grant the FHFA's request.
At a May 18 congressional hearing, senators staked out diverging positions on the FCC's robo-calling rules. Senate Commerce Committee Chairman John Thune, R-S.D., questioned whether the agency has struck the appropriate balance between the interests of consumers and businesses.
But Sen. Claire McCaskill, D-Mo., made clear that she will oppose any efforts to loosen existing restrictions on robo-calls. "This is the biggest consumer problem in the country," she said.
The Federal Trade Commission fields more than 170,000 complaints a month about robo-calls. And last year the agency received more than 900,000 complaints about debt collection, which was more than any other industry.
The FCC declined to comment on the FHFA's proposal.