TRANSCRIPTION: TESTIMONY May 15, 2012; California Legislative Conference Committee Hearing on Foreclosure Crises SB 900 and AB 278;

; Afternoon Session 1:00 PM; Room 447, California State Capital; Sacramento, CA Testimony of Ms. Stephanie Mudick, Executive Vice President, Head of Consumer and Regulatory Affairs,, Mortgage Banking J.P. Morgan Chase: http://calchannel.granicus.com/MediaPlayer.php?view_id=7&clip_id=375 [00:20:00] "Thanks for inviting me to appear before you today my name is Stephanie Munich and I'm executive vice president and head of consumer regulatory practices and mortgage banking business at JPMorgan Chase. We greatly value our long standing partnership with California and we are delighted to be consistent growing a business in California over the last several years. During this period we've also been very focused on our mortgage customers growing our array of foreclosure prevention programs and increasing the number of borrowers who benefit from loan modifications and other forms of homeowner assistance to these challenging economic times. I'd I like to review these efforts and along with the recently announced National Mortgage Settlement and the proposed legislation related to it that you are currently considering. Chase currently services about 1.2 million loans in California out of about 8 million nationwide. About 7% of our loans are 60 plus days delinquent as of February 29th this year, a level lower than the national average of 8% and 55% lower than three years ago. We service loans on behalf of the owner of the loan which sometimes is Chase itself but more often is someone else a government sponsored enterprise such as Fannie Mae or Freddie Mac or government agencies such as the FHA or VA, securitized trust or other private investor. Chase realizes California homeowners continue to face tough challenges in these difficult economic times. We are committed to working with borrowers to help keep families in their

homes and we offer several foreclosure prevention programs designed to provide sustainable solutions to troubled borrowers. From January 2009 to February 2012 we prevented over 186,000 foreclosures in California or about 2.6 foreclosures prevented for each 1 completed , a success rate better than national average. Our performance over the last three years has resulted in more than 105 permanent modifications to California homeowners under various modification programs including HAMP. During this same period we completed over 58,000 short sales and refinanced over 186,000 mortgages in California. To help struggling borrowers we have added more than 10,000 employees to our borrower assistance and default operations which is nearly double the staff we had in 2008. When a borrower fails to make a payment on his or her loan often within 15 days we start trying to contact them and we make repeated attempts to contact delinquent borrowers by letter and my phone to talk about foreclosure prevention options. When a borrower responds to our outreach efforts, the borrower is assigned to one of our 3,000 dedicated consumer assistance specialists who serves as the single point of contact for the borrower throughout the process. Recognizing that many borrowers were struggling with the overall process and were looking to talk face-to-face to us, in early 2009 we began opening a nationwide network of Chase Homeownership Centers. We now have 82 Homeownership Centers nationwide, 18 of which are in California. At the centers we are able to meet with homeowners face to face and help them work through the modification process. Since 2009 we have met with over 62,000 California borrowers at our Homeownership Centers. We appreciate the partnerships we have created with your district offices and staff to help get out the word regarding these centers and we hope to do even more going forward to make more progress. Weve also partnered with housing agencies, not-for-profits, and HUD certified housing counseling groups to host more than 680 local outreach events in California since January 2009 providing assistance to over 26,000 additional California customers. By February 2012 the number of California customers 60 or more days delinquent had dropped by almost one-half to roughly 85,000 .

Foreclosure is the last alternative. Youve (laugh) just heard that from B of A. And we strongly prefer an alternative to foreclosure for the borrowers and our own financial perspective Keeping borrowers in their homes is better for communities. Its better for home values and therefore it is better for all of us. Its also better for Chase because if we foreclose, we lose our servicing income from that loan whereas if we modify it, we have a performing loan and continue to receive both servicing fees and often an incentive payment for completing the modification . The decision to foreclose is always a difficult one but is sometimes unavoidable. We would prefer to work with the delinquent borrower and do a modification or another foreclosure alternative like a short sale. We have substantial safeguards in place to make sure that foreclosures are a last resort and instituted fairly in appropriate circumstances. A loan gets referred to foreclosure only after we have made substantial attempts to provide the borrower with foreclosure alternatives. We conduct a special review of each case to insure the borrower is in fact in default and weve complied with our own pre-referral policies at least 3 times, once before the matter is referred to foreclosure and at least twice before any sale. By the time a sale is made we have typically reached out to the borrower approximately 110 times. The landmark settlement signed with 49 states and the federal government contains national servicing standards, consumer relief obligations, and a strict reporting and enforcement mechanism via monitor Joe Smith, the North Carolina banking commissioner Chases share of the $25 billion total settlement is approximately $5.3 billion of which Chase paid about $1.1 billion in cash much of which will be distributed by the attorneys general for foreclosed customers. We are well on track to fully implement the settlement. In it weve agreed to provide $3.5 billion in relief to borrowers including first and second lien principal reduction modification for borrowers in default and over $500 million in refinancing to underwater borrowers. Weve committed to provide almost $2 billion of this consumer relief in the state of California. Under the settlement Chase is offering refinancing to eligible borrowers who are underwater but current on their loans. We have already offered a number of re-fis as well as modifications in California under this settlement and expect to continue to offer additional mods and re-fis in the coming months. We are pushing to accomplish as much of this consumer relief as possible in the first year following the signing and approval of the documents.

The settlement has other notable components that will improve the level of service received by borrowers. Under the settlement the servicers have agreed to abide by detailed and uniform standards for mortgage servicing insuring increased fairness, and transparency. These include additional disclosures to borrowers in connection with servicing activities including foreclosure and loss mitigation, additional disclosure associated with a dual track of foreclosure and loss mitigation. A pre-foreclosure notice to all borrowers which will include account information, holder status and all loss mitigation steps taken to date. Standardizing the process for the review and appeal of loss mitigation denials. Enhancements in document preparation to address socalled robosigning. A single point of contact for the borrowers throughout the loss mitigation process. Enhanced quality control procedures. Commitments related to training and staffing. Limits on the fees servicers can charge including the waiver of certain fees while borrowers loss mitigation application is being evaluated and myriad others. We are well on our way toward full implementation and weve already implemented more than half of the servicing standard requirements. Were also prepared to implement any changes resulting from the CFPB;s new servicing standards which are expected to be finalized by year end. We dont believe the proposed California legislation is necessary given the National Mortgage Settlement and its enforcement regime . We think its premature to enact state legislation on servicing standards particularly legislation that extends the requirements well beyond those negotiated in the National Settlement given that the federal monitor, Mr. Smith, is just beginning his enforcement and oversight and given that the CFPB standards are imminent. We also think its critical that there be a consistent set of servicing standards for the industry and not different rules in one state versus another. If California or any other state creates a different set of servicing rules, additional risk is likely to be introduced into the system as a result of the complexity of the implementation of different rules which will increase costs to both borrowers and servicers alike. The California housing market is now beginning to recover albeit slowly. We encourage you to let the new consumer relief programs under the settlement take effect as well as the implementation of the new servicing standards and enforcement regime before potentially disrupting the fragile recovery with traditionally familiar and conflicting requirements. Were also concerned that the private right of action included in draft legislation

will likely impair the housing recovery of California. As weve seen in other states with long foreclosure timelines as borrower delinquencies persist, houses often sit neglected leading to community blight. The currently proposed right of action language is so broad that it will allow any homeowner who reasonably believes he or she may have been wronged to go to court creating significantly greater backlog of cases and extending indefinite the process for resolution. Those servicers who signed the National Mortgage Settlement are already subject to strict monitoring and enforcement and are committed to mediating any borrower harm identified under the settlement making a private right of action unnecessary at best and counterproductive at most. Finally we believe the proposed right of action has the potential to materially impact the housing related capital markets undermining the still fragile recovery of those markets and reduce the availability of much needed credit to new homeowners. Market investors seek consistence and predictability and the effects of the private right of action will inject uncertainty and delay into the already drawn out processes of foreclosure driving up the cost of credit. [00.30.10] [01:29:44] The other point that I would like to add is that the lions share of customers

whom we start talking to, that first conversation is always about a modification is the lions share the large lions share of homeowners will end up with an alternative to foreclosure. The lions share of customers who end up getting foreclosed upon and we recognize that the numbers seem to be very very large although theyre not that large in the context of the number of those that we actually service in the state of California um, typically get foreclosed because they will not engage in any conversation with us. [01:31:00] [-1:22:10] I think that were all in agreement that the right model going forward - frankly several of us started this model a couple of years ago and have been trying to improve it over time. The settlement agreement totally enhances it and it is to have that one on one relationship so that a customer doesnt have to tell their story the 3rd time, the 4th time, the 5th time, doesnt have to get different advice depending who at the company that theyre speaking with so it took us a while to get there but I think we would have complete consensus at the table that it is better for us and better for the customer. [01:32:41]

[01:39:08]

There are significant consequences in the agreement for failure to satisfy all the

elements of the credit menu. For example we have close to a $2 billion obligation to California. It is our intention and goal to get that done within the first year of the agreement because we are actually incented to do that but weve got a drop dead date and if we dont satisfy those obligations by the drop dead date its gonna be, you know, expensive and much more painful than its been so [01:38:39] [02:06:14] So first I might mention to do a modification under the rules of HAMP and theyre very, very clear and specific rules about what you need when you do a modification, we need to have documentation from a borrower. We need to have certain forms filled in. We need to have income documentation so that we can do a calculation as to what an affordable payment would be and so if we dont have the ability to engage and have conversations with the borrower , we literally are not able to be in a position where we can do a mod. So its kinda its basic and simple as that. You know if we send 25 letters and nobody ever opens up the envelopes and we make 50 calls and no one ever returns our messages then we are precluded from doing anything about that loan so and obligated frankly under the terms of our agreements with our investors and the GSTs to move forward with a foreclosure. [Qtheyre throwing away envelopes and not returning phone calls?] That happens more frequently I know it sounds and Im looking

at your face, Madame Chair, and Im thinking she doesnt believe a word Im saying but the fact of the matter is that it may be that people dont want to open an envelope from the bank that theyre not paying. It may be that people dont want to answer a message from the bank who theyre not paying but we cannot fix the problem unless were able to have a conversation and so that is I think each of the servicers who are testifying here today have made the comment that were trying to do a lot of outreach you know we cant even do a short sale or do the less worse alternative without being able to engage the borrower and so that is a very critical element of , I think, of, of, of and frankly also what else happens is we will have conversations with a borrower about a modification and we never get the documentation thats required in order to do the HAMP loan so we will actually engage but for one reason or another they have trouble producing the information that we need thats one of the reasons why having a single point of contact we hope is going to be very helpful because in our shop and Im sure that my industry colleagues have something similar . Our our customer assistance specialists are calling

everybody whos on their docket every 3 days to say I still need your bank statement in order to put your modification through. I still need the settlement agreement from your divorce in order to put your modification through. And so the goal of having that relationship which we talked about a little bit earlier is that, that there is a little bit more trust and I understand we have some trust and this is a trust industry issues with the population of borrowers who, who believe they have been victims of, of the crises that they and we all have been living through but, but were hoping that is also going to make a significant difference in the pull-through rate and the ability to get someone over the finish line in terms of getting a, a foreclosure alternative you know a foreclosure prevention . [02:10:48]