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Chase Overhauls Lending Practices to Military Personnel

US Banker  |  February, 2011

WASHINGTON — In response to embarrassing recent revelations that JPMorgan Chase & Co. failed to enforce a law protecting military members from foreclosure and high-cost credit, the New York bank announced several significant changes to its practices.

At issue is the Servicemembers Civil Relief Act, which bars lenders from foreclosing on active duty military members and caps their interest rate on all pre-existing consumer debt at 6 percent.

Among other changes, the bank said early Tuesday that said it will lower the maximum interest rate it is charging active duty military members to 4 percent and roll out a special enhanced mortgage modification program for a wider class of military customers.

 "The programs we are announcing today are a start, but in no way a finish," said Jamie Dimon, chairman and chief executive officer of JPMorgan Chase, in a press release. "This company has a great history of honoring military and veterans, and the mistakes we made on military foreclosures are a painful aberration on that track record. We deeply apologize to our military customers and their families for these mistakes. We cannot undo them, but we can take accountability for them, fix them and learn from them. Today we want to begin a new way forward with the military and veteran community to make serving them a core part of how we operate our business every day. Our servicemen and servicewomen deserve nothing less."

Chase's widespread failure to enforce the law was the subject of a House Veterans Affairs Committee hearing last week where the bank discussed its efforts to make whole 4,500 military members it overcharged an average of $70 each and 18 that it improperly foreclosed on. The bank took a beating from lawmakers on both sides of the aisle and Chase hinted that the problems at its company are likely more widespread across the banking industry since it discovered the same compliance issues with accounts it inherited from its acquisitions of Washington Mutual and Bear Stearns.

At the hearing, Chase said it was refunding overcharged customers with interest and had been able to give the foreclosed home back to the homeowner in 12 instances. But lawmakers heavily criticized the bank for not doing enough to repair destroyed lives, particularly for servicemembers in harms way in Iraq and Afghanistan.

Under the changes that Chase announced Tuesday, the bank appeared eager to address all the points of contention it came under attack for last week.

It said it would vastly expand its efforts to prevent foreclosure by offering enhanced modifications for all members of the military who have served on active duty as far back as Sept. 11, 2001.

 "The program will be offered to those who are delinquent or having trouble making their mortgage payments. Subject to the required regulatory and investor approvals, the program will go beyond the government's Home Affordable Modification Program requirements," Chase announced in the press release.

Chase will also take additional steps if it holds a second lien, the bank said.

"In cases when we modify any Chase-owned or Chase-serviced primary residential mortgage, if there is a second mortgage on the same property that is also owned by Chase, we will modify the interest rate on the second to 1 percent," the bank said.

Chase said that it would expand the scope of the law significantly to protect military members in other ways too.

For example, the law limits eligible active duty military personnel to those who took out loans prior to active duty. Under the new Chase protocols, it will extend SCRA protections to any active duty military members regardless of when they took out their loan.

The bank also reiterated its promise to significantly upgrade its internal controls to prevent SCRA enforcement failures going forward.

Chase said that in cases where it has improperly foreclosed, it will rescind the sale and also forgive all remaining mortgage debt. The bank said it will continue to offer such a remedy going forward should it experience compliance failures in the future.

Chase said it would donate 1,000 homes over the next five years to military members and veterans through its non-profit partners. The bank also said it plans to open five new Chase Homeownership Centers in cities near large military bases. 

At the hearing last week, Chase was criticized for obfuscating the process of reaching SCRA-trained customer service representatives, and lacking an easy way to reach SCRA call center.

Chase said it would hold 10 borrower outreach workshops near bases this year and has launched a 24-hour SCRA call center.

It also announced it is forming a Veterans Advisory Council to advise the bank on these programs and other ways it can help the military and veteran community.

Chase also took heat last week over questions about its outreach in hiring military members. In its announcement Tuesday, Chase said it was committed to hiring 100,000 military veterans over the next 10 years.

The bank stressed it has made significant upgrades to its SCRA compliance and announced it has named Maggie Belknap — a retired colonel who served in Desert Storm and is the former head of economics and finance at West Point — as head of SCRA oversight across the company.

Belknap is currently the head of Global Operations Control Management for Treasury Services at Chase.

The company emphasized it is committed to a major overhaul of SCRA compliance.

"We will continue to monitor vigilantly how we serve military and veteran customers and will not be satisfied until we are 100 percent convinced that we are doing the right thing in every case," said Charlie Scharf, CEO of Retail Financial Services, in the release. "We understand we have breached the trust of some of our military customers and we know we need to work hard to earn it back, and we are deeply committed to doing that. We want to work with the military community as partners going forward to become the best company in any industry to serve our military heroes."

— American Banker

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