Facts & Resources

Remarks to the 2011 National Association of Attorneys General Presidential Initiative (Moynihan)

Brian T. Moynihan, Chief Executive Officer, Bank of America
Tuesday, April 12, 2011 3:00 am GMT

April 12, 2011

Charlotte, NC

"A Shared Vision for Retail Banking in America" prepared for delivery...

...introduction given by Roy Cooper, attorney general for the state of North Carolina...

Thank you, Roy. I appreciate being invited to join you and your colleagues today.

I commend your selection of consumer banking and consumer protection as the topic for your Presidential Initiative. It is a timely and worthy subject for the attention you can bring to it.

As a company leading a cleanup of the poor lending practices of others, we support efforts to ensure that the issues that got us here do not take place again.

I want to thank attorneys general from the other states around the country where Bank of America serves millions of households and where many of our nearly 300,000 employees live and work.

We do business in every state in the nation. And we have teammates in every state in the nation... including tens of thousands in California, Florida, Texas, North Carolina, New York and Massachusetts... but also the 600 teammates we have in Oklahoma... the 300 we have in Louisiana... the 27 we have in North Dakota.

We are a global company, but we also are an American company, and we live, work and play everywhere in America. I know that you are all working incredibly hard on behalf of consumers, on behalf of the people of your states. I want to assure you that we also are doing that. The country's challenges are our challenges, too.

The line-up for this conference this week speaks to the importance of the issues we face together.

We are coming through the worst economic crisis and downturn in several generations. The effects on individuals and families across America are well-known. Lost jobs, lost pay and lost homes have put enormous pressure on people and families. Bank of America teammates are focused on this reality every day -- working to find solutions for people, to help them get back on their feet.

We also are working to improve our industry, to help build a better financial system that can produce more stability and more sustainable economic growth in the future.

We did not oppose the creation of

a consumer financial protection entity at the federal level if it helps ensure strong financial goods and services, regardless of the kinds of companies that provide them...This is something that prior regulatory regimes did not accomplish as largely unregulated sub-prime lenders led us to where we are.

We continue to work through the consequences of our Countrywide acquisition. Bank of America did not originate sub-prime mortgages in the years leading up to the crisis. Obviously, Countrywide did and we continue to clean up that situation.

The work on mortgage issues continues; I will discuss that in some detail shortly.

We accept and embrace the responsibility of ensuring consumer fairness and transparency in financial services.

So we share a goal -- a financial system that is safe and fair for consumers, and that encourages economic stability but also enables economic growth. Some of the work we're doing to achieve that goal is what I'd like to talk about today.

The state of U.S. households

The good and most important news is that an economic recovery is underway and the economy continues to grow.

Growth is slower than we would like... and recent events such as the rise in oil prices have trimmed estimates of the recovery's momentum by some measure. Even so, the fundamentals of the real economy are continuing to improve.

Weekly initial jobless claims are now coming in consistently under 400,000. The four-week moving average is now below that level. (At its lowest it will get to around 250,000.) The national unemployment rate has dropped a full percentage point over the past three months.

The household debt service-to-income ratio, which peaked above 14 percent in 2007, is now back under 12 percent -- still too high, but moving in the right direction.

Optimism remains solidly in place for consumers in America. We see that in their behavior.

Consumer spending continues to rise, reflecting that optimism. Our March 2011 data show spending increases of

6 percent over 2010, with about 1 - 1.5 percent due to gas prices. The rest is core activity.

So where are we now, and what does this year look like?

Our estimate for annualized GDP growth in the U.S. in the first quarter is 1.5 percent...soft, but positive. Our economists think we'll see growth in the U.S. for 2011 of about 2.5 percent. Around the world we will see growth in excess of 4 percent. So with Europe and the U.S. holding back total global growth, it is clear the faster growing economies in Asia and Latin America are driving growth.

Responding to financial consumers' changing needs

Through the crisis and recovery, we have seen customer needs evolve and we are evolving with them.

As the economy quit growing and fell into recession, some American families found themselves in a difficult position. Unemployment was rising....wages fell for those still employed, and credit quit expanding due to falling asset values.

As a result, some families were pinched.

Our customers responded to this and told us that:

They want, and will pay for, value they can see and understand.

They value clarity, choice and control in their banking services.

Innovation and new technologies are great... but accuracy, efficiency, reliability and responsiveness are non-negotiable.

The most important and valuable thing a bank can provide to its retail customers is a healthy sense of financial well-being and control over their financial lives.

Some of the most visible changes we've made are directly in line with the goals of your conference this week.

We introduced Clarity Commitment statements for most of our products, spelling out in one-page, plain English documents the benefits and obligations of each product for customers.

Unlike many of our competitors, we refrained from raising credit card rates between the date the Card Act was passed and when it went into effect.

We introduced a new low-cost e-banking option for customers who prefer to do most of their banking through electronic channels.

We introduced a new, basic, no-frills credit card product.

We also eliminated debit overdraft fees at the point of sale. The trend in so-called free checking was accompanied by a growing reliance by banks on fee income from other sources, including debit overdrafts.

The use of the debit card...safer for customers and merchants...grew quickly over the decade as consumers were drawn to the benefits of cash on a card. This led to more transactions...and more overdrafts. While the vast majority of the customers never incurred overdraft fees, the economic downturn had an impact on many customers. We ended up with a large portion of the fees drawn from a much smaller number of customers.

So we had a perfect storm -- an efficient, heavily-used product, an economic crisis, and an impact not contemplated. We stopped that practice -- ended debit overdraft fees at the point of sale. We eliminated the possibility that a customer could end up paying $35 for a cup of coffee without knowing it.

Over the longer term, customers and the broader public are rewarding us for ensuring that our debit cardholders do not inadvertently incur overdraft fees while making everyday purchases. Our attrition rate has dropped dramatically, and we are growing our business again.

We are developing other ways to give consumers choices, clarity, and transparency.

We launched a pilot program in three states that offers customers choices about which products and services they want to purchase from a variety of combinations...and at a variety of clearly spelled out prices.

Depending on the size and depth of the relationship they want with us, customers have the clarity, choice and control over costs and benefits of doing business Bank of America.

These products charge fees, but fees that are clear, fair, and are avoidable if other value is exchanged with the customer through balances....the primary relationship...or fees by transactions. These products are well received by customers and customer advocates alike.

Mending the mortgage markets

So we are responding to what customers told us -- and no doubt are telling you -- about what they want in consumer financial services.

We also are hard at work on a more challenging set of issues. Again, we are working with many of you on the challenge of mortgage servicing and foreclosures.

The problem of delinquent mortgages is the toughest problem our country faces today as we work to put the crisis behind us. Helping to solve it is our top priority.

We are making progress.

Overall, U.S. banks have completed about 4 million mortgage modifications since 2008 to help customers remain in their homes. About 840,000 of those are Bank of America's. We did more than 64,000 in the first quarter of this year, and are now making about one in three modifications in the country.

In the past two years, we have more than doubled the size of our team that works with distressed homeowners, to about 30,000...

Even though homeowners across America are having a hard time, they still want to honor their commitments to the best of their ability. If they aren't paying us, it is due to the age old reasons -- a lost job by one or both wage earners, divorce, sickness. These factors impact the ability to carry the leverage that they qualified for years before.

We're working hard to help those families restructure their loans in a way that enables them to do that.

We also are looking for every good new idea for ways to take action to help America put this issue behind it as quickly as possible.

For example, since 2009, we've hosted more than 650 home retention fairs for tens of thousands of customers in Phoenix, Detroit, Las Vegas, Chicago and many, many others. At these events, our teammates work face to face with customers to create solutions for their challenges. This year, we will open more Regional Customer Assistance Centers in cities around the country...

host 400 more outreach events with nonprofit and local government partners who work with distressed homeowners (such as Neighborhood Assistance Corporation of America, Alliance for Stabilizing Communities and HOPE NOW)... and provide more financial support to community non-profits that are working to help customers find a way to save their homes.

We have been at work for some time now changing our processes to establish a single point of contact in the bank for distressed customers...and making other changes to help make the consumer part of the process easier while also serving the investors who own the loans.

We have donated low-value homes to cities and non-profits to help get the homes into the hands of people who will refurbish them. And we have taken down vacant homes at the request of cities to reduce urban blight.

When questions were raised about the foreclosure process, we stopped all judicial and non-judicial states...conducted an assessment and further improved the process... then restarted.

We also announced a new mortgage modification program specifically for current and former members of the U.S. military. We have served members of the U.S. military with special programs since 1920, and we believe this is the right thing to do for these families.

Servicemembers who are sacrificing to protect our freedoms should be free to focus on the task at hand -- and not be distracted by worries about losing their homes because of economic problems back in the U.S.

On this point, I'd like to recognize Gerald Taylor of the Industrial Area Foundation here in North Carolina, who I know has been working hard to help military families overcome financial challenges... Gerald, thank you for the work you're doing to help those who serve.

One option we consider in a targeted way, including in the military program, is principal reduction. We also consider the possibility of limited principal reduction in other special circumstances, such as customers who are in option adjustable-rate-mortgages that are in negative amortization or other programs as part of the qualification waterfalls.

But in general, we do not see broad-based principal reduction as a sound policy decision for America.

Fairness is a major concern -- it's hard to see how we could justify reducing principal for many delinquent customers who represent a small portion of borrowers, but not for the vast majority of our customers who have stayed current on their loans -- or to reduce principal for an investor, or a person who took out a cash-out refi at the height of the value in their market, when others were more conservative.

There are unintended consequences to any policy, and we don't know what kinds of incentives such a policy could introduce into the market. There also is a question of whether it impacts the customer in any meaningful way.

Every day we talk to tens of thousands of customers who are facing financial hardship and looking for help. Helping customers remain in their homes where possible is our top priority.

We are reaching a crossroads, though, between loan modification efforts and the reality of foreclosure. Many customers who received modifications in the past are now re-defaulting -- the re-default rate is now in excess of 50 percent for mature vintages. We're reaching a point where some customers will be dealing with the reality that despite the myriad programs and the best efforts of everyone in this room, and of our teammates working with these customers, foreclosure may be unavoidable.

Foreclosure is not only a bad outcome for the customer, it also is a very bad outcome for everyone else...socially and financially. That is why it is always the option of last resort.

But when a sustainable modification is not possible, we work to help the customer make a dignified transition to new housing, often involving a short sale or deed in lieu.

It is important to our economy that the housing market stabilize. That will require moving through the modification and foreclosure process as quickly as possible, clearing vacant properties, helping those who need assistance in transition, and moving forward.

We are now more than four years into the housing downturn. Prices peaked in the second half of 2006. The worst is behind us. In many markets, prices have bottomed out.

As we think ahead about new housing related policies, we have to be mindful of the core population dynamics of the U.S. and its regions... the role that housing and housing finance should play in the overall economy... and how America finances its mortgage debt.

These issues loom large, but in the meantime, we need to move through the end of the crisis.

Our goal -- and my commitment to you -- is that we will continue to work hard, devote resources, and lead with energy and creativity to be a part of the solution for communities all over America.


Financial services in America are changing. We also are adapting those principles to the new realities of the global, 21st century economy.

My belief is that consumers of banking services do not simply accept this approach... they embrace it. Clarity, choice and customer control are and will be the winners in our financial services marketplace of the future.

Despite the uncertainty in our economy today I am optimistic... because I can see that our country is, in many ways, in the same position that Bank of America is in...

We have come through the worst of the storm... we have begun to grow again... we have everything in place that we need to succeed... and now we just have to get down to the business of execution... of doing our jobs the right way... again and again, every day, leaving nothing to chance...

That's what I tell our team every day at Bank of America... and that's what I believe will keep this American recovery growing for businesses and consumers... and will lead to a more stable, and sustainable, prosperity in our future...

On behalf of all my teammates at Bank of America, we're looking forward to continuing to do all we can to help our customers and our country move beyond the economic crisis... and to create opportunity and growth for the future.

Thank you for inviting me to speak here today...