Home Ownership and Equity Protection Act (HOEPA)
Public Hearing

June 14, 2007

Board of Governors of the Federal Reserve System
Martin Building, Terrace Level
20th and C Streets, N.W., Washington, D.C.

Transcript Line Page
THE FEDERAL RESERVE BOARD PRIVATE   1
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HOME OWNERSHIP AND EQUITY PROTECTION ACT (HOEPA) 1
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PUBLIC HEARING 1
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Thursday 1
June 14, 2007 1
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The public hearing came to order at 8:43 a.m.  1
in the Terrace Level Dining Room of the Martin  1
Building, 20th and C Streets, N.W., Washington, D.C.,  1
Federal Reserve Board Governor Randall S. Kroszner,  1
presiding. 1
  1
PRESENT FROM THE FEDERAL RESERVE: 1
  1
Randall S. Kroszner Governor, Board of Governors  1
of the Federal Reserve System 1
  1
Sandra F. Braunstein Director, Division of  1
Consumer and Community Action 1
  1
Leonard Chanin Associate Director, Division  1
of Consumer and Community  1
Affairs 1
  1
MORNING PANEL: 1
  1
Janis Bowdler Senior Housing Policy  1
Analyst, National Council of  1
La Raza 1
  1
William H. Brewster Director of Anti-Fraud  1
Initiatives, Fannie Mae 1
  1
Alys Cohen Staff Attorney, National  1
Consumer Law Center 1
  1
Susan A. Davis Executive Vice President,  1
National Consumer Lending,  1
Wells Fargo Home Mortgage 1
  2
Harry Dinham President, National  2
Association of Mortgage  2
Brokers 2
  2
Martin Eakes Chief Executive Officer,  2
Center for Responsible  2
Lending/Self-Help 2
  2
Ira Rheingold General Counsel, National  2
Association of Consumer  2
Advocates 2
  2
Pablo Sanchez National Mortgage Production  2
Specialist, JP Morgan Chase 2
  2
Faith Schwartz Senior Vice President,  2
Enterprise Risk Management  2
and Public Affairs, Option  2
One Mortgage Corporation 2
  2
AFTERNOON PANEL: 2
  2
Steve Antonakes Commissioner of Banks,  2
Massachusetts 2
  2
Michael Decker Senior Managing Director,  2
Research and Public Policy,  2
Securities Industry and  2
Financial Markets Association 2
  2
Ren Essene Research Analyst, Harvard  2
University 2
  2
Joseph R. Mason LeBow College of Business,  2
Drexel University 2
  2
Tom Miller Attorney General, Iowa 2
  2
Mark Pearce Deputy Commissioner of Banks,  2
North Carolina 2
  2
Lori Swanson Attorney General, Minnesota  2
  2
  2
  2
I N D E X 3
  3
Welcome and Opening Remarks 5 3
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MORNING PANEL: 3
  3
Faith Schwartz, Senior Vice President, 19 3
Enterprise Risk Management and 3
Public Affairs, Option One Mortgage 3
Corporation 3
  3
William H. Brewster, Director of 28 3
Anti-Fraud Initiatives, Fannie Mae 3
  3
Susan A. Davis, Executive Vice President, 33 3
National Consumer Lending, 3
Wells Fargo Home Mortgage 3
  3
Harry Dinham, President, National 37 3
Association of Mortgage Brokers 3
  3
Martin Eakes, Chief Executive Officer, 42 3
Center for Responsible Lending/Self-Help 3
  3
Ira Rheingold, General Counsel, 48 3
National Association of 3
Consumer Advocates 3
  3
Janis Bowdler, Senior Housing Policy 54 3
Analyst, National Council of La Raza 3
  3
Alys Cohen, Staff Attorney, 59 3
National Consumer Law Center 3
  3
  3
Pablo Sanchez, National Mortgage 68 3
Production Specialist, JP Morgan Chase 3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
AFTERNOON PANEL: 4
  4
  4
Tom Miller, Attorney General, Iowa 168 4
  4
Mark Pearce, Deputy Commissioner 173 4
of Banks, North Carolina 4
  4
Ren Essene,Research Analyst 177 4
Harvard University 4
  4
Joseph R. Mason, LeBow College of 182 4
Business, Drexel University 4
  4
Michael Decker, Senior Managing 187 4
Director, Research and 4
Public Policy, Securities 4
Industry and Financial 4
Markets Association 4
  4
Steve Antonakes, Commissioner of Banks, 192 4
Massachusetts 4
  4
Lori Swanson, Attorney General, 199 4
Minnesota  4
  4
Open Microphone 265 4
  4
Adjourn 4
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  4
  4
P R O C E E D I N G S 1 5
8:43 a.m. 2 5
GOVERNOR KROSZNER:  All right, good.   3 5
Hopefully we won't be getting any feedback.  But we do  4 5
want feedback from you guys, and that's exactly why  5 5
we're having this hearing today. 6 5
I really want to welcome everyone for  7 5
coming, and hopefully we won't be getting too much  8 5
feedback from the audio problems, but we'll be getting  9 5
feedback from you.  10 5
This is an incredibly important topic, and  11 5
I'm really delighted to see the interest that people  12 5
have with a full house here.  We have a lot of  13 5
important discussions throughout the day, a lot of  14 5
good back and forth. 15 5
We have some superb panelists.  We also  16 5
have an opportunity for the open mike at the end, for  17 5
people who have not formally participated in the  18 5
panels, to come forward.  I'll talk about that a  19 5
little bit more in just a moment. 20 5
Also, I'm Governor Kroszner, and I chair  21 5
the Consumer and Community Affairs Committee, as well  22 5
as the Supervision and Regulation Committee.  Sandra  23 5
Braunstein is the head of our Consumer and Community  24 5
Affairs Division, and Leonard Chanin is her key deputy  25 5
on these issues. 1 6
So we're very pleased that they could come  2 6
here today to participate in this event. 3 6
Well, as I said, I'm really happy to be  4 6
able to chair the Federal Reserve Board's public  5 6
hearing under the Home Ownership Equity Protection  6 6
Act, so-called HOEPA.  The hearing will focus  7 6
specifically on how the Board might use its rule- 8 6
making authority under HOEPA to address concerns about  9 6
home mortgage lending practices. 10 6
During the course of this hearing, we'll  11 6
hear from key players in the home mortgage market,  12 6
lenders, brokers, secondary market participants,  13 6
consumer advocacy groups and community development  14 6
organizations, academics, researchers and state  15 6
regulators. 16 6
Although they all play very different  17 6
roles, they share a common goal, I believe, in  18 6
encouraging responsible mortgage lending for the  19 6
benefit of individual consumers and the American  20 6
economy as a whole.  21 6
The Congress enacted HOEPA in 1994 in  22 6
response to concerns about abusive lending in the home  23 6
equity market.  The Federal Reserve Board was given  24 6
broad authority to implement its provisions, and to  25 6
adopt regulations to implement its provisions, when  1 7
the Board finds it to be necessary and proper to  2 7
effectuate its purposes. 3 7
In addition, the Board has the  4 7
responsibility to prohibit acts or practices it finds  5 7
unfair or deceptive, or otherwise designed to evade  6 7
HOEPA.  The Board understands is rule-making  7 7
responsibility under HOEPA, but is not alone in facing  8 7
the important task of preventing unfair or deceptive  9 7
practices. 10 7
Other regulators share a responsibility to  11 7
ensure responsible mortgage lending through  12 7
enforcement powers.  The states have extensive  13 7
regulatory authority and responsibility under their  14 7
own anti-predatory lending statutes and various other  15 7
legal authorities, and especially their mortgage  16 7
industry licensing acts, which give them considerable  17 7
control over the activities of mortgage brokers and  18 7
lenders. 19 7
Many of the states, including notably  20 7
those that are represented on this afternoon's panel,  21 7
have been very active, very, very active in reining in  22 7
bad actors in the mortgage markets.  The FTC also  23 7
shares our enforcement responsibility under HOEPA and  24 7
other federal laws. 25 7
Finally, the federal financial regulatory  1 8
agencies each have a duty to enforce federal consumer  2 8
protection laws, including HOEPA, with respect to  3 8
depository institutions under their respective  4 8
regulatory ambits. 5 8
In light of the sheer magnitude of the  6 8
task, we're very pleased that these regulators all  7 8
contribute to the goal of ensuring a healthy,  8 8
competitive and responsible mortgage market. 9 8
We are committed to working closely with  10 8
the other federal and state regulators, to ensure that  11 8
the laws that protect consumers are enforced. 12 8
HOEPA also directs the Board to hold  13 8
hearings, such as the one we're holding today, to  14 8
assess the effectiveness of regulations and laws in  15 8
protecting consumers.  Hearings provide us with very  16 8
valuable information.   17 8
In our most recent prior hearings held  18 8
last summer in four cities around the country, our  19 8
goals included assessing the effectiveness of our 2001  20 8
amendments to the HOEPA rules, in curbing abusive  21 8
lending practices while preserving access to credit. 22 8
We also wanted to gather information on  23 8
the effectiveness of the mortgage disclosures required  24 8
by our Regulation Z, pursuant to the Truth in Lending  25 8
Act, to inform a review of those disclosures, which is  1 9
now actively underway. 2 9
Rising foreclosures in the subprime market  3 9
over the past year have led the Board to consider  4 9
whether and how it should use its rulemaking authority  5 9
to address these concerns.  In doing so, however, we  6 9
must walk a fine line. 7 9
We must determine how we can help to weed  8 9
out abuses, while also preserving incentives to  9 9
responsible lending.  A robust and responsible  10 9
subprime market benefits consumers, by allowing  11 9
borrowers with limited credit histories to become  12 9
homeowners, to access equity in their homes, or have  13 9
the flexibility to refinance their loans as needed. 14 9
In this task, we have several tools at our  15 9
disposal.  These include required disclosures by  16 9
lenders, rules that prohibit abusive practices,  17 9
principle-based guidance with supervisory oversight,  18 9
plus formal efforts to work with industry participants  19 9
to promote best practices, and consumer education  20 9
materials. 21 9
The Federal Reserve currently is  22 9
conducting a thorough review of its policies with  23 9
respect to each of these tools.  Last year, together  24 9
with the other federal banking regulators, we issued  25 9
guidance on so-called non-traditional mortgages. 1 10
We also have issued proposed supervisory  2 10
guidance concerning underwriting standards to  3 10
disclosures for subprime mortgages.  The agencies are  4 10
finishing their review of these comments and the  5 10
comments we've received, and expect to issue a final  6 10
version fairly soon. 7 10
The Federal Reserve produces a range of  8 10
consumer education materials, including information to  9 10
help potential borrowers under adjustable rate and  10 10
other alternative mortgage products.  We actively  11 10
promote financial education by partnering with outside  12 10
organizations, as well as doing a number of activities  13 10
on our own that I've been very heavily involved with,  14 10
having been an educator for many years.  I think it's  15 10
very important to make sure to get the ideas out  16 10
there. 17 10
Two tools that we'll focus on today,  18 10
however, are lending disclosure to consumers and rules  19 10
that prohibit or restrict lending practices.   20 10
Disclosures provide information that is critical to  21 10
the effective functioning of markets.  A core  22 10
principle of economics is that markets are more  23 10
competitive and therefore more efficient when accurate  24 10
information is available to all who participate.  25 10
Information helps consumers by improving  1 11
the ability to compare mortgage products and then  2 11
choose the ones that will help meet their best -- best  3 11
meet their personal goals.   4 11
We are keenly aware, however, of the  5 11
substantial volume of disclosures of the documents  6 11
that mortgage lending already entails, and we are  7 11
sensitive to the risk that too much information, may  8 11
be practically of as little value to consumers as no  9 11
information at all. 10 11
Accordingly, we intend to consider  11 11
mortgage disclosures comprehensively, with an eye  12 11
towards improving their usefulness to consumers, while  13 11
remaining mindful of the total burden for the  14 11
industry. 15 11
Perhaps most importantly, we'll engage in  16 11
extensive consumer testing of mortgage disclosures, to  17 11
ensure that disclosures provide information that  18 11
consumers can really use.  This is one of the things  19 11
that I'm very excited about, that we really use in the  20 11
credit card area and we're going to be using in the  21 11
mortgage area. 22 11
Not just making sure that the information is  23 11
there; that's necessary.  But there in a way that  24 11
people can understand and that people find useful. 25 11
We found a lot of surprising things, things  1 12
that we wouldn't have thought about without asking  2 12
real people, going into shopping malls, people who are  3 12
going to be using their credit cards, to find out  4 12
well, what's useful?  What do you want to know?  What  5 12
can be helpful?  6 12
Then when we actually put this down on  7 12
paper, going back to those consumers and saying "Do  8 12
you understand this?  Is this really helpful to you?"  9 12
That sort of back and forth process can be very  10 12
valuable in turning information overload into  11 12
something that is very valuable and useful to empower  12 12
consumers. 13 12
We also recognize that disclosures may not  14 12
always be sufficient to combat abusive practices.   15 12
Because some bad lending practices may require  16 12
additional measures, the Federal Reserve will  17 12
seriously consider how we might use our rule-making  18 12
authority to address abusive practices, without  19 12
restricting consumers' access to beneficial financial  20 12
options, and responsible subprime credit. 21 12
In addition to improved disclosures,  22 12
regulations that restrict or prohibit practices that  23 12
are "unfair and deceptive" may also be necessary.  We  24 12
have heard concerns about consumers being steered  25 12
toward products that they can't afford, and have  1 13
repeated refinancings involving closing costs that  2 13
strip away a borrower's home equity. 3 13
Today, we'll gather information on how we  4 13
might craft rules to stop such abusive practices.  We  5 13
also will seek information from state officials  6 13
regarding their experiences with drafting laws and  7 13
rules that combat predatory lending efficiently and  8 13
effectively. 9 13
During today's hearing, we'll seek  10 13
information from panelists on certain specific  11 13
questions.  I'd like to close by briefly touching on  12 13
some of those questions.  There are four terms or  13 13
practices that have been most frequently cited as  14 13
troublesome in the mortgage market, especially in the  15 13
subprime home equity market. 16 13
They are first, prepayment penalties.   17 13
Second, failure to require escrow for taxes and  18 13
insurance; third, stated income and low documentation  19 13
lending; and fourth, failure to give adequate  20 13
consideration to a borrower's ability to repay a loan. 21 13
At least some of these practices can be  22 13
beneficial at least to some consumers.  For example,  23 13
an informed borrower might choose a loan with a  24 13
prepayment penalty in exchange for a lower interest  25 13
rate or lower closing costs.   1 14
On the other hand, prepayment penalties can  2 14
also be used in an abusive way, such as when a  3 14
borrower is unaware that an adjustable rate mortgage  4 14
loan has a substantial prepayment penalty that will  5 14
extend beyond the first adjustment of the loan's  6 14
interest rate, making it costly or impossible for the  7 14
borrower to refinance the loan to avoid higher  8 14
interest payments. 9 14
We hope to gather information that helps us  10 14
to determine whether rules can prevent the abusive use  11 14
of loan terms or practices, while preserving their use  12 14
in instances where they might provide benefits to  13 14
consumers. 14 14
Given adequate consideration to a borrower's  15 14
ability to repay a loan obviously benefits both the  16 14
borrowers and the lenders.  Recently, the Board and  17 14
other federal regulatory agencies issued guidance  18 14
reinforcing our collective belief that the principles  19 14
of prudent underwriting require consideration of a  20 14
borrower's repayment ability. 21 14
For example, the agencies have provided that  22 14
lenders should qualify borrowers for non-traditional  23 14
mortgage products, such as interest-only loans and  24 14
payment option adjustable mortgage products, based on  25 14
the fully indexed rate and fully amortizing payment. 1 15
Some have urged the Board to adopt this  2 15
broad principle as a rule, while others have urged the  3 15
Board to preserve flexibility to exercise judgment in  4 15
determining the likelihood that a given borrower can  5 15
repay a loan. 6 15
Well, it seems self-evident that adequate  7 15
consideration of repayment ability is necessary.  Our  8 15
experience in crafting guidance has taught us that  9 15
this principle is far easier to articulate in general  10 15
terms than it is to put in a detailed prescriptive  11 15
role, saying which underwriting practice constitutes  12 15
adequate consideration. 13 15
This is especially true in the context of  14 15
mortgage credit underwriting, which can depend on such  15 15
a great number of pertinent consumer-specific  16 15
considerations.  Today, with your help, we intend to  17 15
explore in detail these types of practices, when they  18 15
can be beneficial and then they might be problematic. 19 15
We will seek informed suggestions with  20 15
respect to our four practices I've identified, as well  21 15
as certainly any others that commenters may identify.  22 15
  23 15
First, we ask in general whether such  24 15
practices should be prohibited, restricted or  25 15
subjected to increased disclosure requirements and if  1 16
so, why.  2 16
Second, we ask whether any new regulatory  3 16
treatment of such practices should be limited to  4 16
certain types of loans or certain types of borrowers. 5 16
Finally, we ask whether any state law  6 16
provisions relating to such practices might serve as  7 16
models for the Board to adopt at the federal level,  8 16
and if so, what kind of record these have -- these  9 16
state laws in curbing abuses without restricting  10 16
access to responsible mortgage credit. 11 16
Your participation here and the welcome  12 16
pertinent information to be contributed by the  13 16
panelists and others is very much appreciated and I,  14 16
the other members of the panel from the Fed here and  15 16
the entire Federal Reserve Board thank you very much  16 16
for taking the time to participate. 17 16
Now what I'd like to do is turn to the rules  18 16
of procedure that will govern the hearing for today.  19 16
Each of the invited panelists will have a  20 16
maximum of five minutes, and because we have so many  21 16
panelists and so many people who want to speak, I will  22 16
have to be pretty draconian in making sure that we do  23 16
enforce that five minute limit, and we have a timer  24 16
who will publicly tell everyone what the time is and  25 16
publicly shame someone who may go over the limit. 1 17
That's not because we want to reduce debate,  2 17
but because we want to have a rich debate, in which  3 17
everyone has an opportunity to speak.  There will be  4 17
questions and answers to follow the conclusions of all  5 17
of the opening statements.  We want to get everyone's  6 17
position out there before we have the Q and A. 7 17
The first panel will go until noon, but  8 17
we'll have a break at some point.  So don't worry.   9 17
This is not going to be a test of will, to make sure  10 17
that you can make it through to noon.  We'll take a  11 17
break at some point. 12 17
We'll have an hour long lunch break from 12  13 17
to 1, reconvene promptly at one.  We'll have a second  14 17
panel of experts from one o'clock to three o'clock  15 17
with the same procedures of a maximum five-minute  16 17
presentations, and Q and A. 17 17
From three o'clock to four o'clock, we then  18 17
have a so-called open mike.  What this will allow us  19 17
to do is have people who have not been formally  20 17
invited to the panels, have an opportunity to speak at  21 17
today's hearings. 22 17
You must sign up in advance, though.   23 17
There's a table just outside that door.  David Evans  24 17
is keeping the sign-up list.  Each of the  25 17
presentations at the mike will be limited to no more  1 18
than three minutes.   2 18
Once again, unfortunately I'm going to be  3 18
very tough on enforcing that limit, because I know  4 18
that we're going to have a lot of people who want to  5 18
speak, and I want to make sure that we get through all  6 18
those speakers. 7 18
I have two final points that I want to  8 18
mention.  The panelists, the open mike participants,  9 18
as well as the members of the general public, and  10 18
anyone, whether they are here or not, are encouraged  11 18
and we really look forward to written statements of   12 18
any length being provided to us by August 15th, related  13 18
to the wide variety of topics that we're talking about  14 18
today. 15 18
We do look forward to those written  16 18
statements.  So even though we're keeping the oral  17 18
presentation short, the written statement they submit  18 18
will be as long as you wish.  A transcript of the  19 18
panel discussion and the open mike statements will be  20 18
part of the record, which will be made available on  21 18
the Board's website. 22 18
Again, thank you very much for your  23 18
participation.  Now I'd like to begin formally the  24 18
first panel with Faith Schwartz, from Option One. 25 18
MS. SCHWARTZ:  Well, thank you very much,  1 19
Governor  Kroszner and the Fed Board staff, for  2 19
inviting Option One and myself to participate today in  3 19
this panel.  I'll try to get through my introduction  4 19
within five minutes and we'll get to any key points.   5 19
But I will do my best.  6 19
I am the manager of Enterprise Risk  7 19
Management at Option One Mortgage and our Public  8 19
Affairs, and I have been there for four years.  I'm  9 19
currently on the Federal Reserve's Consumer Advisory   10 19
Committee. 11 19
Option One Mortgage has been in business  12 19
since 1992, and is a nationwide non-prime wholesale  13 19
lender, who originates through a network of brokers,  14 19
and the leaders that started the company are in place  15 19
today. 16 19
Before I get into the introductory paragraph  17 19
that should get to the key points, I would like to  18 19
share that I have been in the business for many, many  19 19
years, over 20, and I've spent ten years in banking.   20 19
I've spent five years at a GSE, Freddie Mac, where I  21 19
helped them manage their subprime interest and  22 19
securitization and their anti-predatory lending  23 19
efforts. 24 19
I've been an entrepreneur for six years  as  25 19
a chief operating officer.  We've relied on the  1 20
capital markets to have nationwide funding to operate  2 20
in the marketplace.  I share that with you because I  3 20
feel I come to this discussion with a pretty informed  4 20
background on some of the nuances that will be talked  5 20
about today. 6 20
So with that, we recommend that the Board be  7 20
cautious in exercising its rule-making authority under  8 20
HOEPA, Section 129.  But we do recommend that they use  9 20
their authority in the following three ways. 10 20
Pursuant to Section 105 of the Truth in  11 20
Lending Act (TILA), to strengthen and simplify  12 20
disclosures with respect to all four topics  13 20
introduced.   14 20
Secondly, we recommend pursuant to Section  15 20
129, 1 and 2 of HOEPA, to craft targeted rules with  16 20
regard to truly unfair acts and practices that are  17 20
abusive. 18 20
Three, pursuant to its supervisory  19 20
authority, deal with most concerns by issuing further  20 20
regulatory guidance which provides more flexibility  21 20
than firm regulations.   22 20
The effectiveness of this guidance has been  23 20
seen in the rapid and positive  transformation of the  24 20
mortgage market in response to federal regulatory  25 20
agencies' non-traditional mortgage guidance, and to  1 21
the parallel state-adopted, the guidance that was  2 21
adopted in over 30 states.  Option One operates by  3 21
that guidance in all 50 states.  4 21
The market has also reflected that guidance,  5 21
and you have a lot of courses and actions here which  6 21
shows that it can be quite effective.  Such a  7 21
judicious mixture of targeted formal rules, together  8 21
with a broader application of general principles in  9 21
regulatory guidance and greater transparency through  10 21
better disclosures, is our recommended approach. 11 21
This path should better protect consumers,  12 21
create a more level playing field for lenders, and  13 21
promote conditions that help keep mortgage capital  14 21
widely available in the communities. 15 21
I will touch upon briefly some of the key  16 21
issues you've asked about.  More timely plain language  17 21
disclosures.  Clearly, people are not happy with the  18 21
current level of disclosures, and in some ways, it  19 21
gets discounted in the market, that they're not  20 21
relevant because no one's reading them. 21 21
So we strongly urge the Federal Reserve,  22 21
under TILA 105, to adopt plain language disclosures  23 21
across the board on all four issues.   24 21
We also think the Board should consider a  25 21
DVD video medium forum to get to borrowers who just  1 22
don't read a one-paragraph plain language disclosure  2 22
as another alternative to reach the borrowers. 3 22
At Option One, we have several plain  4 22
language disclosures.  Since we are not at the point  5 22
of sale when the borrower is with our customer, the  6 22
broker, what we do is make sure if we get a loan with  7 22
a stated income or interest only or an ARM, we don't  8 22
know how that loan was shopped. 9 22
But what we do is we send out a very plain  10 22
language, 8th grade written paragraph that says exactly  11 22
what they've applied for and did they understand what  12 22
they applied for.   13 22
That is sent directly to the consumer.  With  14 22
any material changes, we re-issue those disclosures  15 22
and at closing, we also have those disclosures.  We'd  16 22
like to see the Board act on that further.   17 22
Prepayment penalties are a key issue in the  18 22
market.  I think there's been a lot of debate about  19 22
them, and we actually think the Board should go  20 22
through regulatory guidance on some of the issues that  21 22
surround the prepayment penalty. 22 22
As a policy matter, we don't think anyone  23 22
should have a prepayment penalty that doesn't want one  24 22
or choose one.  We think that there needs to be clear  25 22
notice and information around prepayment penalties to  1 23
the borrowers, so that they can make the best  2 23
assessment of whether they want one. 3 23
Clear notice and finally, every borrower who  4 23
gets one should have a benefit for choosing a loan  5 23
with a prepayment penalty of either rate or fee, or  6 23
lower rate or fee. 7 23
We think that that can again go through   8 23
TILA 105, with clear disclosures on the benefits or   9 23
lack of benefit of a prepayment penalty.  We think  10 23
carefully crafted, through Section 129, 1 or 2 that  11 23
includes substantive requirements that a consumer must  12 23
have a choice to choose a prepayment penalty.   13 23
They must limit the term of the penalty,  14 23
maybe to three years, but -- sorry.  Should I finish  15 23
the sentence or?  Okay.  And let me jump to escrows.   16 23
We believe the Board should do a lot on escrows as  17 23
well.  But really through regulation, we do think with  18 23
both 105 and 129, you can make a big impact on a tool  19 23
that is meaningful if well-applied in the market.   20 23
Okay. 21 23
GOVERNOR KROSZNER:  Thank you very much. 22 23
MS. SCHWARTZ:  You're welcome. 23 23
GOVERNOR KROSZNER:  And now let's turn to  24 23
Pablo Sanchez from J.P. Morgan Chase.  25 23
MR. SANCHEZ:  Good morning to all.  Pablo  1 24
Sanchez, the Retail Business executive for J.P. Morgan  2 24
Chase, and you have an idea of my business is. 3 24
I think we're fairly serious about the time  4 24
element here.  Matthew has a sign that he holds up,  5 24
and actually I think I've seen a stun gun or something  6 24
there. 7 24
(Laughter.) 8 24
MR. SANCHEZ:  So on behalf of J.P. Morgan  9 24
Chase, I would like to thank the Board for the  10 24
opportunity to participate as a panelist on this very  11 24
important topic. 12 24
We strongly support the Board's objective to  13 24
address the concerns that have been raised regarding  14 24
certain mortgage practices, while preserving  15 24
incentives for responsible lenders, to provide  16 24
mortgages to a wide array of borrowers, particularly  17 24
subprime borrowers. 18 24
At Chase, we are committed to help our  19 24
customers achieve, and more importantly sustain home  20 24
ownership.  The key to our mission is properly  21 24
evaluating our borrowers' ability and willingness to  22 24
pay their mortgage with us, and I know we will be  23 24
speaking about that in more detail today. 24 24
There are four fundamental principles that  25 24
we have developed to guide our business practices in  1 25
home lending.  We want our customers to be informed  2 25
and to be able to make responsible choices based on  3 25
their individual circumstances.  4 25
We want to offer a broad array of mortgage  5 25
products that address the financial needs and  6 25
circumstances of our customers, and provide good value  7 25
at a competitive price.  We want to be there if our  8 25
customers suffer a life event and need our assistance  9 25
to remain in their home. 10 25
Finally, we want to provide support to  11 25
strengthen and sustain the communities in which we  12 25
live and work.  Virtually everything we do is designed  13 25
around these guiding principles. 14 25
For example, to inform our customers, we  15 25
have created financial literacy and mortgage-specific  16 25
tools and training, and we have made it available on  17 25
paper, in videos and on the Internet.  Currently, we  18 25
are conducting a four-city tour entitled legacy of  19 25
home ownership, where we offer educational seminars  20 25
designed to educate consumers on various aspects of  21 25
home purchasing and financing. 22 25
We are also in the process of rolling out  23 25
the new disclosure, which we have been testing, to  24 25
answer the most important questions about our loans.   25 25

NEAL R. GROSS
COURT REPORTERS AND TRANSCRIBERS
1323 RHODE ISLAND AVE., N.W.
WASHINGTON, D.C.  20005-3701
(202) 234-4433
www.nealrgross.com