JPMorgan Chase is moving up in the mortgage business, in just about every way possible. Only a few years ago, customer satisfaction surveys available from J.D. Power and Associates placed the mortgage originator and servicer past 10th place — hardly something for a big four bank to brag about.
Kevin Watters, CEO of Mortgage Banking at JPMorgan Chase, said that all needed to change. It didn’t make sense to him that retail banking customers would be so pleased with their services, yet mortgage borrowers would find something to complain about. It’s getting better, but it’s still not good enough.
There needed to be some way to bring synergy to the bank’s client base, and Watters thinks he may have cracked it. The most recent J.D. Power survey ranks JPMorgan No. 4 in both servicing and originations.
“We’re very proud from a consumer standpoint of the strides we’ve made in increasing our customer experience,” Watters told HousingWire from his headquarters in midtown Manhattan. “We’re very pleased with the continued progress in terms of customer experience and return to our shareholders.”
And more progress will come in the mortgage business; a big reason Watters and HousingWire needed to have this chat.
HousingWire: Tell us more about yourself.
Kevin Watters: I joined the bank in 1999, which was then part of Heritage Bank One, in the Internet division running marketing and strategy for an online-only bank that we owned at the time called WingSpan Bank.
I then proceeded to run the Internet group for BankOne for five years and continued to run the Internet for the firm when JPMorgan Chase bought BankOne. In 2005, I took over as CEO of our business banking organization for five years, which manages small business clients from $0 to $20 million a year in revenue. Then in roughly June 2010, I joined the mortgage division to manage mortgage originations and the customer experience, including Chase’s four mortgage production channels: retail, consumer direct, correspondent lending and rural housing. I was named CEO of Mortgage Banking in December.
HW: Do you see value in mortgages and could we see more expansion of your servicing and origination platforms?
KW: We like the mortgage business. We’re going to continue to invest in it. If you look at 2012, we announced the acquisition of MetLife’s servicing portfolio. From an origination standpoint, in the fourth quarter, we launched a new loan origination system that will be in pilot through the beginning of the first quarter and will be rolled out through the balance of 2013. We also launched a new mobile application for our mortgage customers at the end of 2012 that we’re very excited about. It’s the beginning of a new platform for how we communicate with mortgage customers during their home buying process. We continue to add mortgage bankers to our origination business.
HW: How does the new LOS differ from the older version? How will it improve your operations?
KW: The older version had three big job functions. Primarily it was a traditional processor, with an underwriting and closing role and very sequential. Whereas in the new loan origination system, we’re taking the jobs we had in the old system and really blowing them out. Each different piece or task of a loan can be worked by a specific group.
So you might have a group that does nothing but verification of employment, for example. Whereas before that may have been one of many tasks a processor had to do. I think the opportunity it will give our employees is a job to get real technical mastery over certain functions. Through the course of their career, they’ll be able to rotate across certain tasks that I think will be great from a career mobility standpoint. It will allow employees to gain a lot of confidence in the job they’re doing, which will drive employee satisfaction. From a customer standpoint, since we’ll have all these different groups working on their loan at the same time, it will shorten cycle time, which we know is closely related to high customer satisfaction.
HW: JPMorgan Chase is positioning itself to have some pretty cutting edge technology that will speed up closing times but not impact the underwriting process. Would you say you had a big hand in that?
KW: I’m a firm believer that we can use technology to drive both employee and customer satisfaction. If you look at things like the new loan origination system, it will give better cycle time to our customers and save us money at the same time because each employee will be more efficient, so we will be able to do more loans, which will enable us to hire more mortgage bankers.
From a mortgage banker’s standpoint, we know that the best way to keep them is to have a great production system and we’re going to continue to do that. These days especially, when you look at things like Facebook and Twitter, the viral nature of consumer’s referrals is more important now than ever. The more we can get those referrals, the better.
Having managed business banking through the financial crisis, where we were fortunate to do very well every year, you really understand the importance of knowing your customers well, having solid underwriting, making sure you understand your client’s ability to repay and what they have in reserves.
HW: Can you talk about how your mortgage originations numbers are going in specifics? Do you have any actual numerical targets?
KW: We don’t issue targets. What I can say is that in the fourth quarter our mortgage loan originations were $51.2 billion, up from $38.6 billion in the fourth quarter of 2011. So that’s a significant increase year-over-year and up from the third quarter of 2012, which was $47.3 billion. For example, retail originations, which is our mortgage business that’s driven primarily through our branches, continues to grow. We think we have a great branch franchise as we cover most of the core MSA markets and have the top-three share in almost all of those markets. If you look at our share in California, Florida, New York, Texas, Illinois, Arizona and other major cities across the U.S., we have a great brand franchise, so we’re going to continue to add mortgage bankers to cover those branches.
We’ve talked a little about investing in technology to support that growth. We did increase our correspondent business in the fourth quarter of 2012. We like the correspondent business. We think it’s a great way to not only build a strong servicing asset, and we like the core servicing business, but it also gives us a great opportunity to offer our customers other banking products whether that be checking, savings, investments or credit cards. In mortgage, we really look at that as part of bringing new customers into the Chase franchise.
HW: I’ve noticed that JPMorgan Chase is keen on recruiting military veterans. Can you tell me why you find this a key area of employment?
KW: We announced the 100,000 jobs mission for military veterans in 2011 with 92 other companies that collectively committed to hire 100,000 veterans by 2020. JPMorgan Chase, alone, has already hired approximately 5,000 veterans. We think that the men and women who have served our country deserve to have great opportunities here. They’ve proven to be very successful employees for JPMorgan Chase. They have great leadership skills, great follow-up, a great attitude and we’re fortunate when one of the members of our armed service agrees to come take a job here at JPMorgan Chase.
HW: Do you have a target number of veterans or service members you’ll be looking to add on in your mortgage operations?
KW: Not a specific amount. Like I said, 100,000 is spread across 92 companies by 2020, so we’re proud to have already hired 5,000. It’s only been little more than a year and a half since we launched the program. That’s a lot of people we’ve already been able to hire.
HW: Tell us about your approach to dealing with people everyday. Do you have a real hands-on approach? What do you do to ensure that everyone is happy at work?
KW: I think the first thing you need to start with is a talented manager. If you look at the No. 1 reason people leave, it tends to be because he or she wasn’t happy with their manager. So we really try to focus on making sure we train managers the right way so that they have all the knowledge they need to be great folks and we have open feedback lines for employees. We have a button on every employee’s desk across Chase, not just mortgage, where someone can type in feedback. It could be that a call wasn’t returned in time or they were on hold from a support staff. It doesn’t matter what it is. If it’s mortgage related, I get it and I read it.
Depending on what the issue is, the person who’s in charge of that function will follow up and make sure the issue is addressed. Sometimes it’s just suggestions and we may say ‘thanks for the suggestion, I’m not sure we’ll be able to get that one done,’ but the employees knows that we’re reading and responding quickly. I think it’s a great empowerment tool for employees to know they have that. We also do town halls across the country to make sure we can get out into the field and talk with employees one-on-one.
I’ll say I also personally do a lot of breakfasts and lunches with folks. I’ll attend a business review in the morning, have lunch with some folks without their managers in the afternoon, just myself and the front-line employees so we can get direct feedback from them and then we’ll do the same thing across the country. It’s not one thing, it’s a little bit of everything and you need to continuously do it well.
HW: How much feedback would you say you get daily via that button about mortgages?
It’s very popular. I can get anywhere from zero to 30 a day.
HW: Is the value more toward the employee for being able to put a face on a manager that’s past their immediate manager or is the value more for JPMorgan to have that feedback so that you can modify your operations accordingly?
KW: It’s for everybody. The employee feels empowered because their voice is heard, and we feel great that we get great ideas from the frontline folks who are dealing with customers everyday.
We also have an intra-company blog for our sales force. The sales force can blog and say ‘Hey, I have a question about how to do an FHA loan,’ and any other mortgage banker across the company can help him or her out. We just found it’s a great way to share best practices across the country.
HW: Did you find that the recent QM ruling was expected or were there any curveballs in there? Has it been watered down so much that it’s not really going to impact your business going forward?
KW: I think it was consistent with what the Consumer Financial Protection Bureau had indicated they were looking at. There’s still some clarification that we need. We are working with the CFPB and all our regulators to make sure that not only do we have safe and sound banking practices, but we have banking practices that are clear and transparent and fair for the customer. From that standpoint, I think that QM was a good start.
HW: Isn’t underwriting already improving to a point of a safer mortgage business?
KW: I think underwriting is significantly better than it was from the 2005 to 2008 time frame. I think just like any other process, we should always look at how we can improve it. I think some of the ideas behind QM in terms of debt-to-income and ability to repay and really having a safe harbor for banks will make it easier for those types of loans to get done. I think what we are still working through is the impact on non-QM loans.
I think the other issue that still needs to be fleshed out is what’s included as part of the 3% fee cap. I know the CFPB has asked for additional feedback on whether to include mortgage banker compensation or not. We’ve been a strong believer that it should not be included. I think it makes it difficult to try to allocate somebody’s cost to one individual loan, given the way that most mortgage bankers get paid more as they do more volume. Trying to figure out how you allocate those costs across different loans might be tricky.
HW: Do you find that those coming restrictions (Basel III) impact your division?
KW: I think you can see from our earnings release, capital has not been a concern for JPMorgan Chase. We’re continuing to invest in the business and price appropriately based on the Basel III capital levels. But we think we can get good returns and still have competitive pricing for our customers.
HW: Do you support the ultimate role of Basel III in protecting the bank’s internal operations?
KW: I think we’re still working through a lot of the nuances of Basel III and how it impacts U.S. companies versus international companies, especially when it comes to things like mortgage servicing rights treatment. So I think there’s a lot more work to be done there. Obviously as a firm we’ve been a strong believer of making sure that you’ve got a strong balance sheet through good times and bad times, which helped us flourish during the financial crisis and why (in the fourth quarter) we were fortunate enough to announce our record profits for the year, for three years in a row.
I think it fits in with our philosophy that banks should have strong balance sheets, but how to achieve that, we’re still going to make sure we work through that.
HW: How do these international regulations impact one individual MSR policy at one big bank in America?
KW: The rule’s not finalized yet. The question is, since MSRs tend to be unique to the U.S. housing market, depending on the final capital required to be held against the MSR, it could have an implication in terms of pricing and valuation of the MSR, but that still needs to be worked out. Since the U.S. is one of the few countries that has things like a 30-year fixed-rate mortgage, it’s really not an issue in some of the other countries.
HW: It sounds like you are interested in acquiring more MSRs, is that correct?
KW: Yes. We like the core mortgage servicing business. We think it’s a good business, and one we can do well given our scale and investments in technology and core operations.
HW: It sounds that you’re intent to expand your footprint in the mortgage business.
KW: We’re going to continue to grow our mortgage business. We’re growing our retail franchise, we’re going to continue to add bankers there. We’re growing our correspondent business. We think it’s a business we’re going to continue to invest in over the future. We’re going to do it smart, and we’re going to react to the market.
We will not chase share just for the purpose of growing share. We’re going to make sure we have appropriate underwriting. If the credit standards start to expand as other folks try to gain share, we’re going to make sure we have the right underwriting.
HW: Is there any aspect of the mortgage business that you do not like?
KW: You won’t see us buying distressed assets. Our business is really about growing profitable long-lasting relationships over time with our customers. So we’re really trying to deepen that relationship with the customer, and buying a distressed asset, even if it’s economically viable, doesn’t really fit with what we’re trying to achieve.
We’d love for you to come in, get a mortgage with us, have a great experience in our branch, open a checking account, hopefully over time open an investment with us, get a credit card and really grow that full relationship. Starting with an acquisition of a distressed asset wouldn’t be a good entry into that.
HW: What about ending up with a distressed asset? Tell me some of your strategies about the distressed properties you do hold.
KW: For years now we’ve been aggressively working with borrowers who are in trouble to get them into a better place. First we will see if we can modify the loan. You can’t always come to a place where the borrower’s able to, even with a modification, make the payments. If the homeowner can’t work with a modification, then we’ll work on a short sale or a deed in lieu, and still a better result than a foreclosure. But if none of those work, we’ll go to foreclosure when necessary.
HW: Reviews of the foreclosure activities at JPMorgan Chase were recently wrapped up. Can you talk about that experience?
KW: We believe it is better if payments go directly to homeowners instead of consultants. And the majority of our folks whose work on this project has now ended were brought on specifically for this task and we told them we don’t know how long this is going to last. I think people thought they were treated fairly.
We’ll continue to work with those folks to see if there’s other opportunities within JPMorgan Chase that might meet their skillset. Obviously, we’re continuing to hire, whether it be bankers in our branches or mortgage bankers or operations people. A firm of 270,000 people across the globe, even with some turnover, creates lots of jobs.
HW: Do you think there could have been a better way of dealing with these reviews or with the government?
KW: I think generally everyone is trying to do the right thing, and the question is just how. I think as much as we can stay focused on ‘How do we make sure every day we are building a better mortgage business”… if we put it in that context, it will be a great relationship with everyone. We’ve got a good relationship with our regulators, whether that be the Office of the Comptroller of the Currency or the Federal Reserve. For a lot of these things we’re talking about, which happened years ago, if we did something wrong, we should fix it, remediate the people that were impacted, do it quickly, make it right and move on. And really focus to make sure we’re building a better mortgage business everyday.
HW: It must be frustrating sometimes the headline risk you see.
KW: I’m optimistic about the mortgage business. It’s really about the people we’ve been able to help avoid foreclosure. I think it’s close to 1 million people we’ve helped avoid foreclosure since 2009. Our modification pipeline is down 60%, which is a good indication that people are able to make their payments. Our complaints are way down. If you look at our production numbers, I think it’s 840,000 people over the last three years that we’ve been able to help purchase a home. Those are staggering numbers of folks we’ve been able to help. I feel good about that. I think the men and women I work with everyday feel good about that. At the end of the day, if you look yourself in the mirror, you think you’re doing a good job, you’re doing all you can, and you’re doing it the right way, I go to bed happy.
HW: How do you see, going forward, the evolution of the housing finance business?
KW: We think reform is necessary. I think it’s important that we get private capital back into the mortgage business. I don’t think the taxpayers or businesses are comfortable with the role the government’s playing today, so we’re going to continue to work with Fannie and Freddie and FHA on how we get private capital back in.
I think with the government buying 90% of all loans today, that’s just too large a share for a market this size. I give a lot of credit to the men and women of Fannie and Freddie who have stayed and really turned those companies around through difficult times. So we’ll partner with them to work on both how we continue to improve the servicing business, how we handle borrowers in distress and how we have an origination business whose real mission is to keep folks in their home over time.