The following report is my fifth on JP Morgan Chase's progress toward satisfying its consumer relief obligations under its settlement with federal government and five states (Chase RMBS Settlement or Settlement). The Chase RMBS Settlement addresses claims that Chase, Bear Stearns and Washington Mutual packaged and sold bad residential mortgage-backed securities to investors before the financial crisis. This Settlement requires Chase to provide $4 billion in relief to consumers by December 31, 2017.

As detailed in this report, I have credited Chase with $3,324,010,726 in consumer relief to 151,436 borrowers through December 31, 2014. This report explains the work my team performed to credit that amount.

This report also details an additional $231,269,947 in consumer relief to 6,671 borrowers through March 31, 2015 that Chase’s Internal Review Group (HRG) asserted to me in May 2015. I have no yet credited this additional activity. I am in the process of confirming the additional amount and will include my results in my next report.

The Chase RMBS Settlement requires Chase to distribute $4 billion in credited relief by December 31, 2017. Relief may be distributed in four different types, which are each credited differently:

1. Modification – Forgiveness/Forbearance¹

2. Rate Reduction/Refinancing²

3. Low- to Moderate-Income and Disaster Area Lending³

4. Anti-Blight⁴

Additionally, Chase receives incentives for certain relief conducted in the first year, in hardest-hit areas⁵ and on loans held for investment, as opposed to loans serviced for others.

For more information about these credit types and incentives, see my Initial Report or the Settlement Agreement.

In my last report, I confirmed that Chase had earned $2,245,673,500 in consumer relief credit from 111,924 loans submitted for credit through September 30, 2014. In February 2015, the HRG asserted to me that Chase had completed an additional $1,078,337,226 of creditable relief through December 31, 2014.

After conducting the review described below, I can confirm this additional relief brings Chase’s total credited consumer relief amount to $3,324,010,726.

Consumer Relief Reported Through March 31, 2015

On February 17, 2015, the HRG asserted to me that Chase claimed nearly $1.1 billion in additional credit benefiting 39,512 borrowers for the testing period ending December 31, 2014. Approximately 67 percent of Chase’s claimed credit was delivered via modifications through forgiveness, forbearance and forgiveness of forbearance; approximately 25 percent through Chase’s lending program for borrowers in hardest-hit areas and first-time, low- to moderate-income buyers; and
approximately 8 percent through rate reduction. The table sets forth, the type of relief, claimed by Chase for the testing period ending December 31, 2014.

The HRG performed a Satisfaction review, and as a result, reported to me that:

1. The consumer relief was based on completed transactions correctly reported. 
2. Chase correctly calculated the relief based on the formulas set forth in the Settlement.
3. The relief correctly reflected the requirements, conditions and limitations.

The HRG also submitted  to me work papers reflecting its review and analysis. I examined these work papers as part of my review.

According to the work plan⁷, the HRG must test a statistically valid sample from four different testing populations, which reflect the types of eligible consumer relief for which credit is sought in the testing period:

1. Modification – Forgiveness/Forbearance⁸
2. Rate Reduction/Refinancing⁹
3. Low- to Moderate-Income and Disaster Area Lending¹⁰
4. Anti-Blight¹¹

For the testing period ending Dec. 31, 2014, Chase claimed credit in the first three consumer relief types. Chase did not seek credit during this period for anti-blight activities. Using an Excel-based sample size calculator and randomizing software, the HRG selected statistically valid samples from each of the three testing populations. In selecting the samples, the HRG used a 99 percent confidence level¹²(one-tailed), 2.5 percent estimated error rate and 2 percent margin of error approach (99/2.5/2 approach). The total number of loans in each testing population and the number of loans tested in the sample by the HRG are below.

HRG Testing Samples 

The HRG had access to loan-level information relevant to testing for loans in each sample through Chase’s system of record.

After verifying eligibility and recalculating credit for all loans in the sample, the HRG compared its results (Actual Credit Amount) to the amount Chase reported (Reported Credit Amount). The Settlement work plan allows for a 2 percent error threshold.

Had the Reported Credit Amount been too high (more than 2 percent above the Actual Credit Amount) for any testing population, Chase would have to analyze all loans in the testing population and submit an updated report. The HRG then would have tested a new sample in the applicable testing population using the same process.

Because the Reported Credit Amount for the Rate Reduction testing population was too low (more than 2 percent below the Actual Credit Amount). Chase could either have taken the lower credit amount it initially reported or corrected the underreporting and resubmitted the entire population for testing. Chase elected to take the lower credit amount.

Additionally, the Reported Credit Amount was within the error threshold for the modification- forgiveness/forbearance and low- to moderate-income or other lending. Therefore, the HRG asserted to me that the amount of credit Chase claimed was accurate.

Before I began testing the HRG’s work, I, along with the professionals working with me, met with Chase’s representatives to better understand its mortgage banking operations, systems of record, and its HRG program. We also reviewed the HRG’s proposed approach for consumer relief testing. These initial meetings have informed my work thus far, and my professionals continue to meet with the HRG and Chase as necessary.

At my direction, BDO, conducted an extensive review of the HRG’s testing from March to May 2015. BDO tested the entire sample of loans in each of the three testing populations. BDO’s testing procedures and access to information for each testing period allowed for loan-level testing of each loan in the sample.

After completing this loan-level testing, BDO determined that the HRG correctly validated the consumer relief credit Chase reported. The following table sets forth the results of the testing conducted by the HRG and BDO.

HRG & BDO

For each of the samples tested, BDO’s credit calculations and the HRG’s credit calculations were the same. BDO determined that the Reported Credit Amount did not exceed the Actual Credit Amount by more than the 2 percent error threshold in the work plan. As discussed above, Chase elected to claim the Reported Credit Amount for Rate Reduction even though it was lower than the Actual Credit Amount, rather than to resubmit.

BDO documented its findings in its work papers and reported them to me. I then undertook an in-depth review of the HRG’s work papers with BDO, as well as BDO’s work papers, and agreed with these determinations.

As described in my third public report, I inquired into whether Chase complied with certain policy-based, non-creditable requirements of the Settlement. Specifically, I wanted to confirm that Chase did not implement consumer relief through any policy that violates the Fair Housing Act or Equal Credit Opportunity Act or condition consumer relief on a waiver or release by a borrower, other than in the case of a contested claim where the borrower would not otherwise have received as favorable terms or consideration.

As part of this inquiry, I interviewed certain members of Chase’s management who know the processes and procedures Chase used to select borrowers who received consumer relief under the Settlement and determined that Chase has complied with the non-creditable requirements. Based on those interviews, as well as the testing procedures described above, I have no reason to believe that Chase has no continued to comply with those requirements.

On May 15, 2015, the HRG reported to me the gross relief Chase provided through March 31, 2015 and the amount of credit Chase claimed and the HRG validated as of March 31, 2015.

Gross Relief

On a gross dollar basis, Chase has asserted that it provided $19.3 billion in principal forgiveness, rate reduction or eligible lending to 158,107 borrowers as of March 31, 2015, and  $499.7 million to 6,671 borrowers in the first quarter of 2015.

As discussed above, these gross dollar figures cannot be used to measure performance against Chase’s $4 billion consumer  relief obligation because they have not been subject to the Settlement’s crediting formulas.

Gross Relief Table¹³

HRG Assertion

On May 15, 2015, the HRG reported that Chase claimed $231,269,947 in consumer relief credit during the first quarter of 2015, bringing its asserted total to $3,555,280,673. I have not yet verified the HRG’s assertion for the first quarter 2015. My team and I are in the process of conducting that verification, and I will report on the results in my next report.

After reviewing the information submitted to me and completing the work described in this report, I have determined the following:

i. The amount of consumer relief asserted by the HRG on February 17, 2015, is correct and accurate within the tolerances permitted under the work plan.

ii. I have no reason to believe that Chase has failed to comply with any of the requirements of the Settlement from October 1, 2013, through December 31, 2014.

The HRG submitted also to me work paper reflecting its review and analysis. I will report the results of my validation work for the first quarter 2015 in my next report to the public.