Public Hearing Release of Remaining "Superstorm Sandy" Insurance Funds Currently Held by Banks and Mortgage Servicers to Affected Homeowners

Sr. Vice President & General Counsel 16 Credit Union Association of New York 17 18 19 20 21 22 23 24 25 1 SENATOR GRIFFO: [No audio]. There are a 2 number of activities ongoing in the Capitol today, 3 so you will see individual members coming and 4 going, and I do appreciate them making the time in 5 this busy scheduling day that we have here in Albany 6 today. 7 I want to start with recognizing the ranking 8 member of the Senate Standing Committee on Banks, 9 Senator Ted O'Brien, to my left. 10 Senator O'Brien, welcome. 11 SENATOR O'BRIEN: Thank you. 12 SENATOR GRIFFO: And, Senator Carl Marcellino 13 to my right. 14 Senator Marcellino, thank you for being here. 15 I also want to, at this time, thank those who 16 will be participating in the process today: 17 Superintendent Lawsky, thank you for your 18 attendance here today; 19 To the local officials who are in the 20 audience, who we'll be meeting shortly as they 21 testify, thank you for your attendance today; 22 And also to the members of the banking 23 community and the credit unions that are here 24 today, I look forward to hearing all of you. 25 This Senate Standing Committee on Banks 1 hearing I've called, to try to do what we can to 2 inform and educate homeowners on the release of 3 the insurance-claim proceeds, and we're trying to 4 see what we can do to help assisting in the 5 expediting of the release of any remaining insurance 6 funds from the "Superstorm Sandy" that were being 7 held by banks and mortgage servers. 8 I think that is very important. 9 I also want to acknowledge now the presence 10 of the distinguished Vice Chair of the Committee, 11 Senator Hugh Farley. 12 Thank you, Senator Farley, for joining us. 13 SENATOR FARLEY: Thank you. 14 My apologies for being late. 15 SENATOR GRIFFO: I told them it's a busy day. 16 We understand. 17 So, thank you. 18 "Superstorm Sandy" brought great devastation 19 across the state, as we all know, particularly in 20 New York City, Long Island, and in the 21 lower Hudson Valley. 22 So, the Administration and all of us in the 23 Legislature are very concerned, what took place, and 24 we know that so many homeowners suffered damage to 25 their property, and as a result, had to file 1 claims with their insurance company. 2 Once these insurance companies settled the 3 claims and disbursed the funds, homeowners in 4 disaster areas became faced with additional 5 requirements in order to receive the full amount 6 of funding. 7 And, that's extremely important for all of us 8 to have a better understanding and grasp, in order 9 for us to ensure that these individuals are 10 receiving and being returned to a normal lifestyle 11 in their community and in their homes. 12 So, banks and mortgage companies did 13 require certain documentation regarding the repairs 14 to these homes. 15 This was done, not only to protect their 16 investment in the property, but to protect 17 homeowners against unscrupulous contractors. 18 So, today, I think at this hearing, what I'm 19 hoping, is that we will get good feedback from 20 stakeholders and from the Administration, and also 21 to educate homeowners and the public on what we 22 can do to ensure that they are receiving their 23 insurance-claim funds, in this particular instance, 24 but equally as important as what we continue to do 25 in the future as we face episodes such as we have 1 in recent years. 2 We're going to be hearing, as I said, from 3 members of the financial institutions, we're 4 going to be hearing from those in the community. 5 And we're going to start off with our 6 superintendent of the Department of Financial 7 Services. 8 Superintendent Lawsky, it's always a pleasure 9 to have you. We appreciate your hard work, and all 10 your efforts on behalf of the department, and the 11 Administration. And we welcome you, and look 12 forward to listening to you, and then asking a few 13 questions. 14 So I'll now turn it over to 15 Superintendent Ben Lawsky. 16 BENJAMIN M. LAWSKY: Thank you. 17 Thank you very much, Chairman Griffo, 18 Vice Chair Farley, Ranking Member O'Brien, 19 Senator Marcellino. 20 Thank you all for being here, and for 21 inviting me to testify. 22 I do want to just take one point of privilege 23 when I start, and introduce two people that are with 24 me today: 25 One is, Kate Powers, to my left, who is -- 1 who runs our legislative shop; 2 As well as, Dan Burstein, who you probably 3 haven't met before. He is our executive deputy 4 superintendent for real estate for our real estate 5 finance division. He has led the charge on these 6 issues for us. 7 So if you ask me any questions that are too 8 hard for me, he will know the answer. He is truly 9 the expert on this. 10 As you said, Mr. Chairman, the impact of 11 "Storm Sandy" really can't be overstated. The -- it 12 brought incredible devastation over, really, a 13 shocking geographic -- shockingly large geographic 14 region, and it underscored the importance of 15 insurance. 16 This is not the Insurance Committee, but 17 we're talking about an insurance issue today in many 18 ways. 19 This is what people have insurance for. This 20 is why people pay premiums, months after month 21 after month, year after year, for when a catastrophe 22 like this occurs. 23 And right after the storm, Governor Cuomo was 24 very clear with DFS and, frankly, with me 25 personally, that we needed to take whatever steps 1 possible to maximize private-insurance payments, 2 where appropriate under the existing contract, were 3 getting to "Sandy" victims, and they were getting 4 to "Sandy" victims quickly, so that there could be 5 a more robust and effective rebuild. 6 So that's what we've tried to do at DFS. 7 We've worked very hard in the early days 8 after the storm to get adjusters to individuals' 9 homes and to get insurance money flowing. 10 And that was difficult, initially, but as the 11 insurance checks began to be cut to homeowners, 12 we began a see a new problem, as you've outlined, 13 Mr. Chairman. Banks and mortgage servicers, who 14 were required to co-endorse these insurance 15 checks, were causing a bottleneck, and delaying 16 the flow of funds, not intentionally, but that was 17 what was developing. 18 And as more insurance money began to flow, 19 week after week after the storm, the holdup became 20 worse and worse, and it was really very tough on 21 homeowners. It was a -- what we call a 22 "double-whammy." 23 They were homeowners who had run the gauntlet 24 with their insurance companies, and, finally, gone 25 through that whole process to get their insurance 1 money, and expected to now get it, were all of a 2 sudden faced with a whole second round of red tape. 3 They were often at this point, exhausted; 4 their homes were ruined; it was cold; it was 5 getting colder and colder outside; and they were 6 having trouble getting their money. 7 It was, you know, a real problem that we 8 encountered at that point. 9 Just to be clear, under normal circumstances, 10 it is appropriate for lenders to want to monitor 11 repairs, to ensure that insurance money is being 12 put to a legitimate use. 13 Lenders have a legitimate interest in 14 protecting the collateral interest in a mortgage 15 loan, of course, but it is all too clear now, that 16 when we encountered this problem in the weeks 17 after "Sandy," we weren't even close to being under 18 normal circumstances. 19 And as I said, the scope and severity of 20 damage was huge, and there was an enormous number of 21 insurance claims; and, thus, an enormous number, 22 eventually, of insurance checks. 23 And the extensiveness of the damage in our 24 communities, and the fact that it was getting colder 25 and colder outside, made it incredibly important 1 that insurance money flow to the rebuild, and flow 2 fast. 3 So in order to address this emerging problem, 4 back in December, the department reached an 5 agreement with ten of the major banks and 6 servicers that enabled homeowners to get their 7 insurance advanced payments faster. 8 The insurance payments, obviously -- the 9 advance payments were obviously important because, 10 when you get the advance, the homeowner can at least 11 begin their rebuild and their repairs. 12 And that was generally successful. 13 But, more recently, we have begun to see that 14 as the advanced payments were being depleted, 15 final settlement checks were still getting 16 bottlenecked at the banks. 17 We, therefore, sent a data request to all the 18 banks, to learn exactly how much "Sandy" insurance 19 money was being held up there. 20 And we found, in late January, early 21 February, that there were approximately 22 6,600 checks that weren't out of the banks yet, 23 valued at more than $208 million, with the four 24 biggest banks accounting for about 130 million of 25 the 208 million dollars. 1 Given these findings, the department, at 2 the Governor's direction, took a number of steps. 3 First, we approached all the banks and asked 4 them to adopt a series of best practices to really 5 cut the red tape. 6 For example, we asked them to minimize the 7 documentation they were requiring, and to release 8 funds through their branches. 9 Second, since banks pointed out that part 10 of the problem was, that Fannie Mae and Freddie Mac, 11 the GSEs, were part of the problem, and that their 12 guidance -- since the GSEs own about 65 percent of 13 the mortgage loans in New York, and around the 14 country, that part of the problem was the guidance, 15 and the lack of clarity that the GSEs' guidance 16 provided, we, at the Governor's direction, wrote a 17 letter, and communicated otherwise, not only with 18 Fannie and Freddie, but also with FHFA, their 19 regulator, which is inside of HUD. 20 And just recently, the last couple of days, 21 we've received a very positive response from the 22 Secretary of HUD, Sean Donovan; FHFA; and the 23 GSEs. There are now new guidelines that are just 24 out, that will, for current borrowers, 25 significantly speed up the flow of money. 1 And at the Governor's direction, we are now 2 working hard to ensure that the banks are speeding 3 up their processes pursuant to the new guidance. 4 I'm happy to say that, because of that new 5 guidance, and the banks really stepping on the gas 6 now, this week alone, an additional $75 million will 7 flow out of the banks. And that's a very positive 8 development. 9 We are, third, working very -- working to 10 have the banks and servicers deploy, with DFS, 11 to impacted areas in our communities. And the 12 banks will be with us at various locations. 13 Starting on Monday of next week, all the way 14 through next Saturday, we'll be in each community 15 every day with DFS personnel, but also with bank 16 personnel, and we're going to get -- work very hard 17 to have members of the communities come out, and 18 they can deal with their lender directly, under DFS 19 supervision. And, hopefully, that will also help 20 cut a lot of the red -- of the red tape. 21 So, the current status, I would say more 22 money is flowing, and that is a good thing. 23 We will be in the communities, with the 24 banks, and that is a good thing. 25 Nevertheless, more money is now flowing into 1 the banks from the insurance companies. 2 So while it's coming out of the banks 3 faster, it's also going into the banks faster, and 4 we need to stay vigilant over the next few weeks, 5 and monitor how we're doing in terms of 6 effectiveness in getting that bottleneck broken. 7 I think the banks, frankly, are working 8 very hard. They recognize this is a problem, and 9 they recognize that this is not normal circumstances 10 we're dealing with. This is a -- basically, an 11 emergency, and people need to rebuild, and, it's 12 very cold out, and, it's time to all work together 13 and get a resolution to this. 14 So we've dealt -- overall, in conclusion, 15 post "Sandy," we've dealt with an evolving set of 16 issues and problems. 17 The Governor has been very clear with me and 18 with DFS that we're to do all we can to help 19 homeowners. 20 And, we will always try to do more, and do 21 better, and do it reasonably, and work with the 22 banks. 23 And that's what we will continue to do. 24 And, I look forward to also working, of 25 course, with this Committee, and with the 1 Legislature, if there are any other ideas or 2 solutions or issues we should be focused on. 3 So, thank you very much. 4 SENATOR GRIFFO: Thank you, 5 Mr. Superintendent. Appreciate you being here. 6 I've got several questions in some basic 7 areas, on jurisdictional responsibility and 8 authority, on some of the lessons that we've learned 9 in preparedness, and then, on policy, achieving a 10 balance, as we began to discuss towards the end of 11 your remarks. 12 But let me start by asking you: 13 Right now, is there a -- do you have this 14 charge, or is there a specific state agency, that 15 has the responsibility to regulate contractors, to 16 prevent homeowners from being deceived by any 17 unscrupulous contractors or practices that may be 18 out there? 19 BENJAMIN M. LAWSKY: Yeah, I don't believe -- 20 we'd have to think very creatively in the 21 financial-services law to find a jurisdictional hook 22 to look at general contractors. 23 The attorney general definitely has 24 jurisdiction. 25 Having worked in that office years ago, 1 there is jurisdiction there regarding contractors. 2 My guess is, depending on how they do their 3 licensing, there may be some jurisdictional hooks 4 at the Department of State. And I would have to 5 look at that, and talk to our Secretary of State who 6 has been very vigilant on all -- a lot of these 7 types of issues. 8 And, third, we'd have to think, county by 9 county in the localites, how they regulate the 10 contractors. 11 But it's certainly an issue to worry about. 12 SENATOR GRIFFO: How about, can you delineate 13 more how the funds are released to homeowners who do 14 the repairs themselves? 15 BENJAMIN M. LAWSKY: Sure. 16 So, typically, the advance flows -- let's 17 talk about, now that we've gotten certain reforms, 18 the advance flows pretty readily, and that can be 19 up to $40,000 right away. 20 And I usually think about the typical flow of 21 money is really in thirds. 22 So, they'll release an advance, and then 23 they'll release another third as the repairs are 24 progressing, and then another last third later. 25 And it -- depending on the nature of the 1 loan, the amount of the repair, and whether the 2 individual is current on their mortgage or not, the 3 bank, through an inspector, will require either more 4 or less monitoring of the repairs as they proceed. 5 So that's typically how it works. 6 SENATOR GRIFFO: How about homeowners who 7 receive help from volunteers? 8 Because we have some of those circumstances 9 where volunteers are helping to make repairs to 10 homes, I mean, are these volunteers liable for 11 those repairs? 12 Do you know how that would work, or -- 13 BENJAMIN M. LAWSKY: That's a great question. 14 My guess is, if you have a volunteer doing 15 repairs, depending on the relationship between the 16 homeowner and the volunteer, if there's a problem, 17 if you have a volunteer put in an electrical system 18 and they're not supposed to be putting in an 19 electrical system, and then there's a fire, that 20 would be a real problem. 21 And my guess is, there are various codes that 22 have to be complied with to avoid that kind of 23 thing. 24 If volunteers are helping with more 25 simpler -- simpler repairs, it's probably less of 1 a problem. 2 SENATOR GRIFFO: With the easing of Freddie 3 and Fannie, we talked about, in your remarks, and 4 we alluded to earlier, do you have an anticipation 5 of how quickly now these funds will be released? 6 I know we talked about hoping that it would 7 be. 8 Do you have an idea of, time-frame wise? 9 BENJAMIN M. LAWSKY: Yeah -- yes. 10 So we're seeing -- we're seeing the spigot 11 flowing faster now after the Fannie guidance. And 12 the four large banks -- Bank of America, 13 JPMorgan Chase, Citi, and Wells Fargo -- as well 14 as one of the largest servicers in New York State, 15 Aquin, all five have now agreed, post guidance from 16 Fannie and Freddie, to release 75 percent of the 17 total amount very rapidly. 18 So, we are seeing -- for current borrowers, 19 we are seeing that flow pick up. 20 The -- I think we have to wait another week, 21 maybe even two weeks, to really get a measurement, 22 because, again, we've had a big flow of insurance 23 checks into the banks, and we've just had this 24 change in policy the last few days. 25 The banks are quickly adjusting, but I think, 1 we'll take a survey of the banks, probably 2 mid-next week, and -- maybe late next week, and 3 we'll get a sense of where things stand. 4 And I'd be happy to report to the Committee 5 what that snapshot is at that time. 6 If there's still a lot of money sitting 7 there, we go into our usual mode, which is, Okay, 8 what can we do to try and get more money out the 9 door? 10 And, we would go to the banks, and we'll have 11 that conversation with them. 12 SENATOR GRIFFO: DFS was really up front with 13 the insurance companies, as you articulated. 14 Do you think in the future we can with do 15 something similar with the banking industry, to 16 prevent some of that confusion and consternation 17 that occurred with members of the public and 18 homeowners because they weren't familiar with all 19 aspects of how they're going to get all that money 20 back without going through all the various 21 procedures that are required? 22 BENJAMIN M. LAWSKY: Yeah, I think having 23 learned the lesson of "Sandy," I think we will be 24 better prepared the next time. 25 And I think -- I know the banks will be. 1 They certainly don't want this headache either. 2 It's not like they're profiting in some huge 3 way, with $200 million sitting in escrow. They have 4 to comply with the Fannie-Freddie guidance. 5 And that's probably one of the biggest 6 drivers, and they just weren't ready for the 7 administrative burden. 8 I think we will be much more aggressive next 9 time, because it's interesting; this was a problem 10 that didn't develop the day after "Sandy." It was a 11 problem that developed several weeks, if not a 12 month or two, after "Sandy." 13 And had we anticipated it earlier, we could 14 have prepared for it in those first few weeks 15 after the storm when we were very focused on 16 insurance. 17 And I think next time around, we will move up 18 that time frame, so that when the banks start to 19 get the money, they will already be ramped up and 20 ready to move it out the door where appropriate. 21 SENATOR GRIFFO: Does the federal disaster 22 declaration have anything to do with any expediting 23 the funds in that disaster-specific area? 24 Are you aware, does that declaration do 25 anything to assist in moving things quickly? 1 BENJAMIN M. LAWSKY: I don't think so. I 2 don't know for sure, but it is certainly worth 3 thinking about for the future, that -- again, the -- 4 the guidance that Fannie and Freddie usually put 5 out, and the processes the banks usually have, 6 make a lot of sense, because they own the collateral 7 and they want to protect the collateral. 8 That makes a lot of sense on "blue sky" 9 days. 10 And -- but, post storm, when there's an 11 emergency, we want to often, given the breadth of 12 the damage and the severity of it, relax those 13 standards so the money can flow, because we need the 14 rebuild. 15 It's better for everyone. And is, frankly, 16 long term, better for the banks that the community 17 rebuild more effectively. 18 So, it would be worth having a conversation 19 about it, thinking about whether we should tie some 20 of our guidance or rules to that kind of 21 declaration of a disaster, which could trigger some 22 best practices that we think make a lot of sense 23 after a storm. 24 SENATOR GRIFFO: Members? 25 Senator Farley? 1 SENATOR FARLEY: Yes, Ben, I want to start 2 off with something, just to compliment you. 3 You took over at a very difficult merger, and 4 time, and so forth, and did a splendid job, and I 5 applaud you for that. 6 Really, we're very critical many times, 7 legislators, of agency heads, and so forth. 8 You've got a good reputation, and I'm very 9 proud of you. 10 BENJAMIN M. LAWSKY: Thank you. 11 SENATOR FARLEY: I also want to thank you and 12 the Governor for the job that you've done with 13 the -- with this "Hurricane Sandy," and how you 14 acted expeditiously, and so forth. 15 And I do want to just point this out, I want 16 you to be vigilant on this one: 17 Our congressional delegation, and everybody 18 else, was very, very aggressive in trying to obtain 19 federal money, and it wasn't easy. And there's a 20 lot of money coming into the state of New York on 21 that, and I applaud everybody that worked hard to 22 see that happen. 23 But whenever there's money, and a lot of 24 money, there's mischief that takes place. 25 And I think that you, and the 1 attorney general, but you -- you're on the ground, 2 pretty much, in this area, to be vigilant, to make 3 sure that we don't blow our image in New York for 4 this help that the federal government is, because of 5 people taking advantage of money that's out there. 6 And I think that your people, and so forth, 7 should be very, very aware of this, and nip it in 8 the bud. 9 That's basically what I'm trying to say. 10 And I know that your background in the 11 Attorney General's Office, and so forth, you're just 12 a man to watch that stuff, and I would just point 13 that out for you. 14 BENJAMIN M. LAWSKY: Thank you. 15 SENATOR GRIFFO: Thank you, Senator Farley. 16 Senator Marcellino? 17 SENATOR MARCELLINO: Good afternoon, I 18 think -- yes, good afternoon. 19 BENJAMIN M. LAWSKY: Good afternoon. 20 SENATOR MARCELLINO: Ben, the -- you've done 21 a good job in identifying the banks and identifying 22 the holding up of the money. 23 But who's -- who's following up? 24 Who's making sure that the money will flow, 25 that the banks do have the inspectors, that they 1 do show up? 2 Because, I have complaints from 3 constituents, basically saying: We called and 4 made an appointment. They said they would come. 5 Didn't come. We called back. They had a problem, 6 guy got lost, whatever. 7 All kinds of excuses were given, but the 8 homeowner living in a cold house, with mold, and not 9 being able to go there, and not being able to 10 rebuild, doesn't -- doesn't handle that kind of an 11 issue well. 12 So who's checking? 13 Who's making sure? 14 BENJAMIN M. LAWSKY: So, Senator, we're doing 15 that in several ways: 16 One is, we have had very good success 17 dealing, one by one, when consumers, whether 18 through their elected representatives or 19 themselves, come to the department, whether through 20 our hotline or through our mobile command center or 21 the other centers we're running in the impacted 22 areas. 23 When individuals come in and say, "I'm trying 24 to get my money," it's held up at this bank, or it's 25 held up at that bank, or if they have a problem with 1 their insurance company, we've had remarkable 2 success, because I think, frankly, with the 3 regulator of these companies, when we call, they 4 tend to jump on those individual cases. 5 But that doesn't answer the broader problem, 6 which is, we have thousands and thousands and 7 thousands of people in that situation. 8 And those who are stepping up and 9 complaining, and saying, "Help me," are getting 10 relief. 11 But there are thousands of others who aren't, 12 that are not getting relief, and that's why we then 13 try to work hard at more systemic solutions, having 14 the guidelines changed, having -- pushing the 15 banks at large to put more money out. 16 And that's why we started, maybe most 17 importantly, monitoring the amount of money that's 18 sitting at the banks. 19 And we get pretty detailed breakdowns now 20 from the banks every couple of weeks, to 21 understand what the situation is. 22 And so, a month ago -- a little less than a 23 month ago, we knew there were about 6,611 or so 24 checks sitting at the banks, worth about 25 $208 million. 1 We'll get another snapshot of that next week, 2 and we'll see how we're doing, and then we follow 3 up, and follow up, and follow up. 4 Dan Burstein, who's with me today, has a 5 group that works with him in the real estate 6 finance division, and their job is to keep following 7 up with the banks, but also with consumers and 8 homeowners who come to us with complaints. 9 And, that's basically how we're doing it. 10 SENATOR MARCELLINO: I hear -- my only -- my 11 concern is this: 12 I look upon my office, with respect to 13 constituency, we're a kind of a court of last 14 resort. 15 The constituents shouldn't have to call me, 16 they shouldn't have to call you, we shouldn't have 17 to call you, to go after a bank, or whatever, to 18 release money that is -- that they're holding for 19 whatever purpose. 20 I understand the need to protect your 21 collateral, and that's perfectly fine. 22 But I also visited with the public administer 23 for the City of Long Beach, and I also spoke to the 24 mayor of Rock -- of Freeport. 25 These are devastated communities. These are 1 communities that are struggling to get back in time 2 for a season. 3 BENJAMIN M. LAWSKY: Yes. 4 SENATOR MARCELLINO: The summer season is a 5 lot to these communities. They live on the tourism, 6 they live on that. Their businesses live off of 7 these things. 8 So, then, one would hope that the banks, 9 the insurance companies, would have responded 10 better, knowing that, and recognizing that, and 11 knowing the fact that there are new rules, because 12 now some of these homes that were grandfathered in 13 under old zoning and old rules of construction 14 will now have to rebuild under certain new rules 15 that will be -- that have been put in, in place, in 16 flood zones and the like. 17 I've got calls from people who have been 18 canceled. Put in a claim on the insurance company, 19 and [snaps fingers] the next day, they're canceled. 20 Before they -- almost before the check is -- 21 before they get the check, they're being canceled on 22 their policy, because they're not going to write 23 flood insurance anymore. 24 So they no longer have flood insurance. 25 They're chasing that. 1 We need your office to make the banks and 2 the insurance companies, whatever, move quicker. 3 I mean, yes, I understand this was an 4 unprecedented storm. Everybody got caught short. 5 That's understandable. 6 But once the storm hit, and once they got 7 their handle on it, the reaction was woefully slow. 8 "Woefully slow." 9 I've toured these communities, I've toured 10 these areas. They're devastated. 11 And one of the worst things that we have, and 12 the biggest fears that the locals have, is that 13 they will not be rebuilt the way they once were. 14 That people will take the money and put some, you 15 know, patchwork-quilt repair work in, and then you 16 don't have solid communities anymore. You have 17 almost shanty towns that might erupt where you had 18 vibrant communities and good business areas in. 19 We're fearful of that. 20 And I am looking forward to hearing that your 21 community will, and your agency will, move these 22 people quicker, and make sure that they are prepared 23 to respond quicker in the future. 24 Because that next storm, as the Governor has 25 said, could happen tomorrow. 1 There's no guarantee. We're still in the 2 winter. There's no rule that says we can't have 3 another "Sandy." That one can't come here and hit 4 us again. 5 So, are you confident that there is enough 6 preparedness in place, that the reaction time of the 7 insurance companies and the banks will be better 8 should we get whacked again? 9 BENJAMIN M. LAWSKY: Look, I think it will -- 10 all points well taken. I agree with everything 11 you just said, Senator. 12 I think next time around, the banks and the 13 insurance companies will act faster, no question, 14 having been through this. 15 And I think we will act faster. 16 But, I don't think it's enough, frankly, and 17 we need to keep improving, and getting better and 18 better, and the insurance companies and the banks 19 need to keep improving, and getting better and 20 better, at these storms which are going to keep 21 occurring. 22 And, you know, the Governor likes to say to 23 us: You are supposed to be solving the problems 24 of real people, with real problems, in real time. 25 And that is our goal every day. 1 And we -- the real issue, as you pointed out, 2 is the real-time aspect of that. It can't be so 3 slow. And -- because that delay is everything, 4 getting ready for the new season, but, also, just 5 building up the community. 6 We saw it, post "Irene," the communities that 7 started the rebuild faster did better, because it 8 becomes a self-fulfilling prophecy. 9 Once the local grocery store is back up, more 10 people can spend more time rebuilding their homes, 11 because they can go get food down the street. 12 And there are ten other examples like that. 13 And that is why we have pushed so hard, 14 sometimes to the industry -- industry's chagrin, to 15 ask for more, more, more, quicker reaction. 16 And we'll continue to do that, but I don't 17 think we're there yet. 18 I think it will be faster next time, but, we 19 need to be creative and out of the box. 20 And, even if we're a pain in the side of the 21 industry sometimes, we need to push for that speed, 22 because our communities need to come back fast, and 23 they need to be rebuilt, like you said, vibrantly, 24 and not as -- not shoddily. 25 SENATOR MARCELLINO: Thank you. 1 BENJAMIN M. LAWSKY: Thank you. 2 SENATOR GRIFFO: I want to inform the 3 Superintendent, and those in attendance, that we've 4 been joined by some of the -- our other members. 5 Senator Martins and Senator Golden, thank 6 you; 7 Senator Sanders, thank you. 8 And I'm now going to ask Senator O'Brien. 9 SENATOR O'BRIEN: Thank you. 10 And thank you, Chairman Griffo, for convening 11 this hearing on a matter of such great importance to 12 so many New Yorkers affected by 13 "Superstorm Sandy." 14 And thank you for your testimony, 15 Superintendent. I really appreciate you being here, 16 and your comments. 17 In your comments, you talked about data 18 collection that showed that, in late January, there 19 was better than $200 million of proceeds held. 20 I'm trying to get some context for that 21 number. 22 Do you have -- in that data-collection time 23 period, were you able to determine how much funds 24 were paid out to homeowners or contractors as of 25 the time you collected the data? 1 BENJAMIN M. LAWSKY: Sure. 2 I don't have it in front of me, and 3 Mr. Burstein might in a minute, but it's a much 4 bigger number flowed out. 5 Over a billion dollars had already gone 6 out. 7 So it is a -- you know, a smaller percentage 8 that was sitting there, but, nevertheless, 9 $200 million is a lot of money for a lot of -- for 10 6,000 families who could be doing that much more 11 rebuilding if they had it. 12 SENATOR O'BRIEN: Right. And I know that the 13 relaxation of rules of Fannie Mae has -- recently 14 announced could be sought by local banks and 15 banks that have loans on homes there. 16 In your view, is that development, although 17 just recent, perhaps the single most important thing 18 that could happen in terms of releasing the 19 remaining funds of logjam, or are there other 20 things that maybe we should be looking to or 21 considering? 22 I guess that's kind of a complicated 23 question, but I guess if you just stick to, 24 initially, will that be a particularly significant 25 event, in terms of easing money, proceeds, that are 1 still being held from homeowners? 2 BENJAMIN M. LAWSKY: I think it's a 3 significant event. I don't know that it's the most 4 significant event yet. 5 I'm wrestling with that, we're wrestling with 6 that, exact question, and I think it's -- it remains 7 to be seen. 8 A lot of -- a lot of the problem is just red 9 tape. It's just that we -- there are processes at 10 the banks that were designed for normal "blue sky" 11 days, and they weren't designed for devastation on 12 this massive scale, and this huge influx of 13 insurance money that needs to go out for the 14 rebuild. 15 And, frankly, with a lot of homeowners, I 16 think 40 percent of the homeowners, are not current 17 on their mortgages. And that creates an extra 18 danger for the mortgage holder, the banks, or 19 Fannie and Freddie. 20 But at the same time, many of these 21 individuals want to rebuild, and want to get 22 current on their mortgage. 23 So, when you have a large number of 24 borrowers you have to deal with, that has created 25 a lot of red tape. 1 And, so, we're working very hard with the 2 banks, to come up with processes, to give them the 3 assurances they need, but at the same time, speed 4 things up. 5 That's why I'm very hopeful, that as we start 6 next week, when we're at all the different main 7 locations with DFS personnel, and with the personnel 8 from the banks who will hopefully have authority 9 to endorse checks right there, or at least tell 10 people what more documentation they need, that 11 should really help the process. 12 We found that one of the big holdups, 13 believe it or not, initially, was, individuals got 14 checks. Said, Here's your $40,000 check for your 15 advanced payment to start rebuilding your house. 16 And then they said: You need to send this to 17 your bank to get them to co-endorse it. 18 And people were just reluctant to let go of 19 that check. They did not want to put it in the 20 mail, but they couldn't cash it either. 21 And, so, we had weeks of holdup simply 22 created by that. 23 And I think everyone is nodding, because you 24 understand that, intuitively, you don't know where 25 the heck it's going, and when it's going to come 1 back. 2 And I think, by showing up in the communities 3 and working with homeowners, that may be even more 4 important than the relaxing of the Fannie-Freddie 5 guidance. 6 SENATOR O'BRIEN: Thank you. 7 BENJAMIN M. LAWSKY: Thank you. 8 SENATOR GRIFFO: Senator Martins? 9 SENATOR MARTINS: Good afternoon. 10 BENJAMIN M. LAWSKY: Good afternoon. 11 SENATOR MARTINS: I think we're all familiar 12 with the frustrations that our communities have 13 experienced, as people try to rebuild, and the 14 pressures between the insurance companies 15 releasing checks, banks cross-endorsing them. 16 And I know that it takes time. 17 And I'm glad to hear that we're going to have 18 these -- these certification centers set up 19 throughout the communities, because I think that 20 will go a long way towards -- towards helping. 21 But, you know, we are now four months post 22 storm. All right? 23 I think today marks the fourth -- 24 fourth-month anniversary of this storm, and we still 25 have thousands of people who are without power, and 1 waiting checks. 2 I have examples of people who started 3 rebuilding -- got an up-front payment, started 4 rebuilding, then had to stop. Wait for them to come 5 inspect. Wait for that check to come. That check 6 then has to be endorsed by the bank, and that's 7 another five- or six-week period, and then they can 8 start working again. 9 It just -- it's untenable. 10 Sitting here four months post storm, with 11 all of the complexities that we've discussed, and 12 certainly that you've discussed today, how would you 13 do things differently if something were to happen 14 tomorrow? 15 BENJAMIN M. LAWSKY: Well, I think with 16 respect to the bank issue that we're talking about 17 today, I think we would react and get ready, and 18 work with the banks, to prepare for that the day 19 after the storm. 20 That -- this issue became an issue after the 21 insurance process had taken place for many people, 22 and the check said, Come in; and then gone to the 23 banks, and then we had the holdup. 24 And then we were left scrambling to try and 25 solve that problem. 1 Had we prepared for that problem, which we 2 didn't foresee, the day after the storm, a lot of 3 this buildup of the checks -- of the insurance 4 checks wouldn't have happened. 5 So I think that's one very good lesson 6 learned here, is we react more quickly. 7 I think we also need to have a real -- 8 continue to have a very real conversation with HUD, 9 and, FHFA, the regulator of Fannie and Freddie, as 10 well as with Fannie and Freddie, to say that, after 11 an emergency, long term, the next time this happens, 12 what else can we do to eliminate the burdens, and 13 eliminate the holdup of these checks going out. 14 Third, I think we can always do much better 15 consumer education, and let people know that, the 16 day you get that check, don't put it in the drawer 17 for a week, and think about whether you want to send 18 it out to the bank. Get to the bank right away. 19 And then there's the whole series of best 20 practices we've been working with the banks on, 21 so we have a single point of contact at every bank 22 for individuals when they have this problem, so 23 every time they call, they don't get bumped to a 24 different person who doesn't know their file; 25 Or, we get the local branches to be willing 1 to endorse the checks, as opposed to having to 2 send it to the main branch; 3 Or, I think we'd set up the centers we're 4 setting up now, four months later. We would set 5 those up two weeks after the storm, and have bank 6 representatives there. 7 We were very focused on -- post "Sandy," on, 8 this was an insurance event, largely. 9 We were talking to the banks constantly 10 about: 11 When they were going to get their branches 12 open in the impacted areas; 13 We were talking to them about forbearance on 14 mortgage payments, and forbearance on consumer 15 fees. 16 And the bank were great on a lot of those 17 things. 18 We should have been talking to them, looking 19 back on it now, about, How do we deal with this 20 issue right away? 21 SENATOR MARTINS: Is there a legislative 22 component that you would suggest needs to be 23 addressed as part of preparing and making sure that 24 this state is in a position to address that next 25 catastrophe? 1 Is there something that we should be doing or 2 looking at, to facilitate your department being able 3 to be better prepared for that next storm? 4 Any suggestions on where we should be? 5 BENJAMIN M. LAWSKY: Yeah, that's a very good 6 question, and we've been having a lot of internal 7 conversations, and with the Governor's Office, 8 about that question. And I don't think we've 9 figured out the answer yet. 10 But, it -- so far, because, as a regulator, 11 DFS has a fair amount of flexibility, I think that's 12 been an asset in dealing with this. 13 And, legislation could work. We'd have to 14 figure out how it fits, because, again, these -- 15 the general -- the typical rules make sense when 16 the weather is fine. 17 SENATOR MARTINS: When the skies are blue. 18 BENJAMIN M. LAWSKY: So had -- we just have 19 to figure out, legislatively, this would sort of be 20 emergency protocols, I guess, after a storm, and 21 what are those triggers. 22 And I think it may be simpler, as a 23 regulator, you can trigger them with the snap of a 24 finger, depending on the circumstance, usually, as 25 opposed to legislatively. 1 But that said, my guess is, as we continue to 2 work through this process, there will be some 3 serious conversations we should have about, Are 4 there legislative solutions as well? 5 SENATOR MARTINS: So, for example, if the 6 Governor would declare an emergency for certain 7 areas of the state, that those protocols would 8 snap into place -- 9 BENJAMIN M. LAWSKY: Right. 10 SENATOR MARTINS: -- allowing, then, 11 Department of Financial Services the ability to do 12 things that they otherwise wouldn't need to do; or, 13 to ask the banks and the insurance companies to 14 forgo certain procedures that they otherwise would 15 require? 16 BENJAMIN M. LAWSKY: Right. 17 The other tricky issue is, so, the four 18 biggest banks which were holding 130 out of 19 208 million -- Citi, JPM -- 20 SENATOR MARTINS: The federal. 21 BENJAMIN M. LAWSKY: -- Wells, and Bank of 22 America -- are all federal banks, which we are, in 23 some respects, preempted from regulating, and in 24 other respects not. 25 What's -- what was nice to see, is when we 1 did approach those banks, they didn't say, Leave us 2 alone. Go call the federal regulator. 3 They saw the problem, they saw this was an 4 emergency, they know all of these people are their 5 customers. And, they've been working with us. 6 So, while there may be, if one legislates, 7 you could be putting state banks in one situation, 8 and have federal banks in another situation, and 9 that could create issues. 10 It was nice to see that, as a regulator, in 11 an emergency situation, all the banks acted as 12 one. 13 SENATOR MARTINS: Thank you, Superintendent. 14 And thank you, Chairman. 15 SENATOR GRIFFO: Thank you, 16 Senator Martins. 17 Before I call on Senator Golden, I just want 18 to follow up on something, and I also want to 19 acknowledge the presence of the Chairman of the 20 Insurance Committee, and a member of the 21 Banking Committee, Senator Jim Seward. 22 Senator Seward, thank you for being here. 23 We talked about, we recognize that these 24 severe weather events are occurring more 25 regularly. They're not isolated anymore. 1 And I know you talked about best practices, 2 and about a number of things that we've learned. 3 At the beginning, I talked about lessons 4 learned. 5 Disaster-preparedness teams drill 6 regularly, to be ready to respond to those 7 disasters. 8 In addition to what you've discussed, and 9 outlined, do you envision that, through the 10 Governor, or through the DFS, that you will bring 11 everyone together again to determine what went 12 wrong? 13 How -- will you drill in some manner, by 14 bringing people around in a roundtable, and just 15 saying: 16 Here's what went wrong; 17 Here's what we need to do better; 18 And we need to almost practice an approach 19 that we will be able to implement immediately? 20 BENJAMIN M. LAWSKY: Yeah, no question. 21 You know, the Governor has been very clear 22 with all the cabinet members that he wants his 23 administration to continue to improve greatly in 24 terms of disaster preparedness and disaster 25 response. 1 And that's something we've been given a 2 mandate for, very clearly, throughout all of the 3 agencies, and drilling is definitely a part of that. 4 Having a checklist also is too, and that 5 checklist is always changing. 6 We had a checklist at DFS, going into this 7 storm, that we knew that we were going to have to, 8 right away, make sure there were enough adjusters on 9 the ground for insurance companies; 10 We knew we were going to have to, for 11 example, deal with people who couldn't make mortgage 12 payments; 13 We knew we were going to have to deal with 14 the impacts of a lack of electricity, and all 15 that; 16 And, we were going to have to deal with bank 17 closings. 18 And we had our checklist. 19 This wasn't on that checklist. 20 Well, this issue is now going to be on the 21 checklist, and we're going to be dealing with that. 22 The problem, of course, is every time you 23 have a catastrophe, at least in my experience, that 24 you learn five new things that didn't happen the 25 last time. 1 And the trick is, becoming better and better 2 at expecting the unexpected, but that's not easy. 3 SENATOR GRIFFO: Senator Golden? 4 SENATOR GOLDEN: Thank you, Mr. Chairman. 5 Is this mic on? 6 SENATOR MARCELLINO: It's on. 7 SENATOR GOLDEN: There we go. 8 The -- I want to thank the Chairman for 9 putting this meeting together, and, of course, my 10 colleagues. 11 I came late, and I was at another "Sandy" 12 task-force meeting, and that's why I'm late. 13 I'm sure most of the questions that I wanted 14 to ask have been asked, and answered to the best of 15 your ability. 16 I know this is a learning process. 17 And I know that, recently, the Fannie and 18 Freddie has just relieved us of some stress here in 19 this, and for some of these banks, which will give 20 us the opportunity to deliver those checks quicker 21 to some of the people that need them. 22 But the frustration level is on the outside, 23 down in the areas that were impacted is 24 significant. 25 The frustration levels of people with no 1 floors, no walls, no sheetrock, no siding, I 2 mean, it's pathetic, and it's very sad. 3 As my colleague Senator Martins had pointed 4 out, this is four months. 5 And, so, every little thing that we can do to 6 relieve the stress on these individual communities 7 is -- is of the utmost importance. 8 I want to take another direction, and I just 9 want to say, that I've had about 15 town halls in 10 my community, and DFS has been there, and been able 11 to deal with the issues that needed to be dealt 12 with in my community, in getting those insurance 13 companies, and the banks, to import and to deliver 14 funding and opportunities for those communities. 15 So, I just want to go out and thank your 16 office personally, and the staff that you had, that 17 has been on the ground, in the communities in 18 Brooklyn and Staten Island and Queens, and, of 19 course, my colleagues here from Long Island and 20 Westchester County as well. 21 It's been important to us, and as I said, it 22 is a learning process. 23 We still have a long way to go, and I'm sure 24 the SOP is being written as we sit here today, to 25 prevent this from happening in the future. 1 But, thank you for what you've been able to 2 do. 3 Thank you. 4 BENJAMIN M. LAWSKY: Thank you. 5 SENATOR GRIFFO: Thank you, Senator Golden. 6 Senator Sanders? 7 SENATOR SANDERS: Thank you, Mr. Chair. 8 Superintendent, yesterday, several of my 9 colleagues up here met with a leading insurance 10 company, and we were discussing ways that they 11 were dealing with the situation, and things, 12 suggestions that they had. 13 They mentioned that they were able to deal 14 with this question of two-party checks, by 15 allowing up to $7,000 to go to the insured, the 16 resident, without having it go two-party. Anything 17 over 7,000, they certainly did a two-party. 18 Is there a way that you can encourage banks 19 to go higher than 7,000, or to make sure that 20 everybody is doing this as a best practice? 21 BENJAMIN M. LAWSKY: I don't know. 22 That's very interesting, and we should 23 explore that. 24 I hadn't heard that. 25 And if there's a way to expand that, that 1 could be, at least at the initial stage, getting 2 that initial amount of money out without even any 3 co-endorsement at all, could be quite effective, at 4 least to start rebuilding, and to getting the home 5 habitable, for example. 6 So, we will explore that. 7 SENATOR SANDERS: Off-line I will tell you 8 which insurance company it was. 9 BENJAMIN M. LAWSKY: Thank you. 10 SENATOR SANDERS: You mentioned earlier that 11 40 percent, and that's an amazing number, of the 12 homes are not current on their mortgage in these 13 particular areas. 14 Can we get a map from you? 15 I would love to know how much of that 16 impacts my district. I represent southeast 17 Queens, I represent The Rockaways. 18 I suspect that it's going to be clustered in 19 certain areas. And I would love to see, if this 20 is true, it helps me understand what I'm grappling 21 with -- 22 BENJAMIN M. LAWSKY: Yes. 23 SENATOR SANDERS: -- if I could get that 24 information. 25 BENJAMIN M. LAWSKY: Yes, absolutely. 1 And to be clear, it's 40 percent of 2 homeowners whose funds are being held, but that's 3 still a pretty high number. 4 And we can try and map that out for you. It 5 might take a little time. 6 But we certainly try, and we're working on a 7 report, actually, we do like to keep track of, apart 8 from the storm and aftermath -- 9 SENATOR SANDERS: Sure, sure. 10 BENJAMIN M. LAWSKY: -- we want to know where 11 borrowers are in trouble, because, as a regulator 12 of mortgage servicers and of banks, we want to 13 have a sense of that, and what's happening in the 14 community. 15 So we can work on that for you, for sure. 16 SENATOR SANDERS: I would really appreciate 17 that, because I suspect that I have another crisis 18 growing that I didn't -- I was not fully aware of. 19 My last point, before I turn this back to the 20 Chair, is -- is there a way that your organization, 21 the -- can train the electors and the staff? 22 I want to make sure, that in this day and age 23 of global warming, that I am up to date on the best 24 practices that there are out there. 25 What should I look for? 1 What checklist, if you wish, should an 2 elected person have at the -- at the onset, and 3 during a storm? 4 BENJAMIN M. LAWSKY: Yeah, that's a great 5 idea, and we'd be happy to do whatever you like, or 6 the Legislature likes. 7 I would only suggest that we're just 8 financial services. 9 SENATOR SANDERS: Sure, sure. 10 BENJAMIN M. LAWSKY: And the Department of 11 Homeland Security does a lot of this, and I know 12 they have extensive materials. And we do 13 tabletops, as a cabinet within the Department of 14 Homeland Security, on days when there aren't 15 storms, to be better prepared. 16 And I think -- I can't speak for the 17 Governor's Office today or the Department of 18 Homeland Security, but my guess is, they would be 19 pleased to have any sort of training or 20 back-and-forth with elected officials, because 21 you're -- all of you are on the ground as quickly as 22 anyone when the storm hits, and the aftermath, and 23 it's -- and you're communicating with your 24 constituents in a way that we don't. 25 And that can be incredibly effective. 1 SENATOR SANDERS: Thank you, Superintendent. 2 Thank you, Chair. 3 SENATOR GRIFFO: Thank you. 4 Senator Seward? 5 SENATOR SEWARD: Well, thank you very much, 6 Mr. Chairman. 7 First of all, I want to thank the Chair of 8 the Banking Committee for sponsoring today's 9 hearing, because, you know, from the 10 Insurance Committee point of view, obviously, when 11 the "Sandy" hit, as other storms upstate the year 12 before, hit, obviously, we monitor, as does 13 obviously, the department, closely, the response, in 14 terms of the insurance companies, the homeowners, 15 and those that are -- properties that are covered 16 through the National Flood Insurance Program. We 17 monitor the response very, very carefully. 18 And, as part of offering a good -- good 19 customer service, I think the insurance carriers, 20 overall, have done an excellent job of -- under some 21 very difficult circumstances; lack of gasoline for 22 adjusters to move about, and challenges such as 23 that. 24 But the -- of late, we keep hearing about the 25 claims not being paid, and they're not receiving 1 their checks. And, of course, that's when this 2 issue of the dual signing with the mortgage holder 3 has come to light. 4 And I commend you, Mr. Superintendent, for 5 tackling that issue. 6 The agreement with Fannie and Freddie I think 7 is excellent. 8 And, of course, going further than that, 9 establishing these centers to be right close to 10 where the property owners are, and bringing 11 insurance and banking together, to expedite the 12 processing of these checks through the signing. 13 And, thinking back, I think, with this issue, 14 has really proven to be a good example of when it 15 has made a great deal of sense to bring a banking 16 department and insurance together, with our 17 Department of Financial Services. 18 So, I commend the Governor, and -- and as 19 well as my colleague Senator Griffo, you know, 20 myself, who -- we worked together to establish that 21 department. 22 I have one question. 23 I apologize for being tardy. There are a lot 24 of activities here at the Capitol today. 25 But, Superintendent Lawsky, I just had a 1 question regarding, we've dealt with the issue of, 2 once you get to the point when the signature from 3 the bank, the mortgage holder, is -- we're 4 expediting that -- that process, rather than sending 5 it off to some far-off location of the bank, to have 6 it done locally, and expedite all of that. 7 Can you describe any of the process of what 8 the banks may be requiring, in terms of 9 documents, before they actually sign -- sign the 10 check? 11 Are you aware of any documents, 12 inspections, paperwork, or any documents that may 13 be required, which could slow the process, 14 potentially, of even getting to the point of the 15 mortgage holder signing the check? 16 BENJAMIN M. LAWSKY: Right. 17 Yes, so, again, it depends on whether the 18 borrower is current or not, first of all, and then 19 it depends on how much damage to the property, and 20 then how much money we're talking about is flowing 21 out at the moment. 22 So, initially, after we worked with the 23 banks, they were willing to put, usually, the 24 advance payment would go out almost immediately 25 without any documentation. 1 And now we're finding, with the new 2 Fannie-Freddie guidance, nearly 75 percent of the 3 entire payout for current borrowers with less than 4 80 percent damage to the home, 75 percent of the 5 in-total insurance payment is going out with very 6 minimal documentation. 7 But, for those who fall into the other 8 categories, where they have to show some 9 documentation, there's -- often, they have to show 10 a -- receipts and a W-9 related to the contractor, 11 and showing that they're actually getting legitimate 12 repairs from a legitimate contractor, and that -- 13 various other receipts and documents related to 14 that. 15 And that's typically the type of paperwork 16 that -- 17 Mr. Burstein is passing me a note. 18 Also, a waiver of lien is often required as 19 well. 20 So, there are some documents, but they can 21 be obtained. And, hopefully, it's not too 22 burdensome, and it's not happening in too many cases 23 regarding too much money. 24 SENATOR SEWARD: So, is it your observation 25 then, that that part of the process of getting -- 1 getting the documents together, has that proven to 2 be a problem? 3 BENJAMIN M. LAWSKY: Well -- 4 SENATOR SEWARD: Or a delay? 5 BENJAMIN M. LAWSKY: Everything's a delay, 6 especially if you're -- if you have to go back and 7 forth by mail with the bank. 8 So, people initially would send the check to 9 the bank. The bank would then call them or write 10 back to them: You need to send us these documents. 11 And then you have to send those documents 12 back. 13 And that process is weeks and weeks 14 sometimes, especially when you have this level of 15 damage and so many homeowners. 16 So, we have -- every little piece of red tape 17 gets magnified when you're having this 18 back-and-forth thing. And that's why we're hoping, 19 having these "certification centers," as you call 20 them, will help improve that. 21 And, often, the paperwork you need has to 22 come from the contractor. 23 And, so, there's a delay potentially there, 24 where the homeowner has to track down the 25 contractor. 1 And then we also saw instances, where, by the 2 time you got the information from the contractor, 3 sent it from the bank, got it back, the contractor 4 was now off doing someone else's house, and you were 5 at the back of the line. 6 So all of these things sort of spiral when 7 there's extensive damage. 8 And the key is, to keep working at it, to 9 make all of this happen more quickly. 10 SENATOR SEWARD: Obviously, the centers 11 should help expedite that whole process, I would 12 hope. 13 Thank you. 14 BENJAMIN M. LAWSKY: Thank you. 15 SENATOR GRIFFO: Thank you, Senator Seward. 16 Superintendent, I know in the past we've 17 talked about -- just a couple of quick questions -- 18 of the importance of ensuring that New York 19 sustains its reputation as the financial capital 20 of the world. And I know you have undertaken a 21 number of actions and initiatives. 22 So in light of events like this now, and -- 23 how would you make that distinction of striking that 24 balance that we talked about early on, between, 25 ensuring that we protect the consumer, but also 1 sustain the soundness and the stability of the 2 banking industry? 3 BENJAMIN M. LAWSKY: Yeah, it's interesting; 4 that's the attention, the million-dollar question we 5 struggle with every day. 6 And, you know, I think this is a good 7 example, where, protecting consumers, protecting 8 the homeowner, and helping the banks, really do, 9 they're not in conflict, in my view. 10 The sooner people are able to get their 11 homes repaired, the sooner they're able to get 12 back on their feet, the better for our economy at 13 large, which is good for all the banks. 14 And, as bank customers, the sooner people 15 feel like their banks are paying attention to them, 16 that, I think, ultimately, will be better for the 17 banks, who are the -- the strongest actors. 18 So -- and it's been gratifying to see all 19 four of the big banks and Aquin, yesterday -- or 20 the last two days or so, all stepped up within 21 hours of each other, and said: We'll release 22 75 percent of the funds -- of the total funds, no 23 questions asked, for current borrowers. 24 And so, I think, again, it took a little too 25 long to get here. 1 And part of that was, we weren't ready for 2 the problem; and part of that was, we had to get 3 Fannie and Freddie on board, through their 4 regulator, FHFA. 5 But we -- I'll give you an example: 6 We have one bank -- local bank, 7 Ridgewood Savings Bank, they've told us now, 8 they're releasing 100 percent of all funds when they 9 get an affidavit from the borrower. 10 Now, they -- my guess is, they don't have as 11 many -- thousands of mortgages as some of the 12 bigger banks, but, it's an example that there's a 13 range of how the banks can perform. 14 And our goal, is to try and encourage as many 15 banks as possible to do as much as they can. 16 We saw, initially, when we took that first 17 snapshot and saw $207 million sitting at the 18 banks, some banks were holding on to 80 percent 19 of the insurance funds. Other banks were holding 20 on to 20 percent. 21 And that -- that's when we knew we had a 22 problem. 23 It wasn't that it was just a terrible storm, 24 and there was just no way out of this, and it was 25 just going to be a tough time. We knew that some 1 banks could do it better, and that's when we know 2 we should be encouraging the banks who are lagging 3 behind, sitting on 80 percent, to get a lot closer 4 to the 20 percent. 5 And I think we're moving there now. 6 But that's -- that's the balance. 7 And it's also not about -- it shouldn't be 8 about tarnishing the reputations of the banks. 9 These -- at least in this situation, this 10 wasn't a circumstance where the banks set out with 11 some sort of ill will. They're not making any money 12 off of this. 13 And at the end of the day -- JPMorgan Chase, 14 if it's sitting on, 30, 40 million dollars in a 15 2 percent escrow for people, that's not a profit 16 center for them. They want to get this money out 17 the door as well. They just have processes they 18 need to improve upon. 19 So, I think when you're trying to find that 20 balance and get the industry thriving, you have to 21 be careful, as a regulator, what you say, because 22 you don't want to damage banks reputationally, 23 when they are trying to improve, and certainly 24 weren't doing -- didn't take any bad acts 25 intentionally. 1 SENATOR GRIFFO: Senator Marcellino? 2 SENATOR MARCELLINO: You just mentioned 3 something that piqued my attention. 4 I was told -- 5 And just so we clear this up, you're -- about 6 whether or not the banks are making money on this 7 situation, because people might suspect that they're 8 holding this money back, that they might be making 9 interest on it, or using it for other purposes, 10 rather than giving it to the repairer. 11 It's my understanding that they pay 2 percent 12 interest to the homeowner. 13 BENJAMIN M. LAWSKY: Quarterly. 14 SENATOR MARCELLINO: Quarterly. 15 But the banks do not themselves take 16 anything from that. They don't get any interest on 17 that money. They don't keep any of that money. It 18 all goes to the homeowner eventually. 19 BENJAMIN M. LAWSKY: That's my understanding. 20 SENATOR MARCELLINO: Is that correct? 21 BENJAMIN M. LAWSKY: Yes. 22 SENATOR MARCELLINO: I just wanted to clear 23 that up so that there's no misunderstanding out 24 there that the banks are doing something nefarious 25 to hold on to money and deliberately delay this 1 process. 2 BENJAMIN M. LAWSKY: Yes, this is not an 3 example of banks taking nefarious or deliberate 4 action. 5 This is an example of banks not having 6 their processes in place to deal with the magnitude 7 and the -- this massive inflow of insurance 8 checks, with this guidance from Fannie and Freddie 9 layered on top of that. 10 Could they have done a better job? 11 Absolutely. 12 But -- and can they continue to improve? 13 Sure. 14 Can we, as regulators, do a better job of 15 working with them earlier in the process? 16 Absolutely. 17 And we'll do that. 18 SENATOR MARCELLINO: Thank you. 19 SENATOR GRIFFO: Senator Golden? 20 SENATOR GOLDEN: Real quick, I know this is a 21 banking committee, and my question is really 22 towards insurance. 23 And I -- first, I want to make a comment on 24 Ridgewood. 25 Ridgewood is probably impacted because they 1 have Breezy Point. 2 Breezy Point is devastated. I mean, they've 3 lost 600 homes. 4 So, God bless them if they're paying 5 100 percent, because I'm not even sure their zoning 6 has been resolved yet, and -- in Breezy Point, as to 7 how you can, build, rebuild. 8 I know we came up with our flood maps that 9 give us the opportunity to know at what level we 10 have to build at, but there's a significant amount 11 of work that has to go own in Breezy Point, as well 12 as in Brooklyn, as well as in Staten Island, Nassau 13 and Suffolk County as well. 14 So, it's important that any way of releasing 15 funds to these communities, obviously, helps to 16 expedite that process. 17 And, of course, more dollars are obviously 18 needed at the state and city level, when it comes 19 to distributing money from FEMA and from the federal 20 government, and give them that opportunity to build. 21 But my question is: 22 I understand you've started an investigation 23 on three different insurance companies. 24 Has that increased, the number? 25 Is it still three insurance companies? 1 And if you could, briefly, and you don't have 2 to go into it -- into full content, but, if you 3 could give us a briefing paper on where you go with 4 those investigations, and what you find. 5 Could you just give me a brief overview of 6 what's going on? 7 Because that was one of the issues that's 8 still going on in any community. The insurance 9 companies are not paying and these people are having 10 difficulty, as well as with the checks being 11 double-endorsed. 12 BENJAMIN M. LAWSKY: Yes, so -- thank you, 13 Senator. 14 As we started to look, and we're actively 15 monitoring the actions of various insurance 16 companies, post "Sandy," many of them were doing a 17 decent job. 18 But there were, as we monitored complaints, 19 especially in certain enclaves of impacted 20 homes, we were getting large numbers of 21 complaints as to certain insurers, insurance 22 companies. 23 And, we spent some time examining that, on -- 24 in an informal way. And having found some 25 legitimacy to the complaints, we opened 1 investigations into three companies. 2 I'd say, right now, we're at 3 1/2 companies, 3 so I can't really talk about the half yet, because 4 we're not there yet, and haven't made the decision 5 to add a fourth company. 6 But, we will -- and we don't take it lightly. 7 It's a big deal to open up an investigation, 8 publicly, into a company. 9 And -- but these three companies we thought 10 had enough complaints, that were -- we thought, at 11 least on their surface, legitimate. 12 And they related to getting appraisers out 13 to properties; 14 They related to being even able -- consumers 15 even being able to reach the company, to make a 16 claim to begin with; 17 And, delays in money flowing out, insurance 18 checks, at all. 19 And with those three companies, it was 20 happening over and over and over again. 21 And after talking with the companies, we 22 weren't seeing any progress or improvements of any 23 significance, so we decided to continue those 24 investigations. 25 SENATOR GOLDEN: Superintendent, if you could 1 give us -- the Chair of Insurance, Mr. Seward, a 2 briefing on that, and a paper, we'd' appreciate it. 3 And of the "Sandy" task force, the 4 subcommittee, if they could get them as well, a 5 briefing on that, and a white paper on it, we'd 6 appreciate it. 7 Thank you very much. 8 BENJAMIN M. LAWSKY: Sure. 9 SENATOR GRIFFO: Senator Sanders? 10 SENATOR SANDERS: As a follow-up, 11 Superintendent, would you be kind enough to name the 12 three companies? 13 BENJAMIN M. LAWSKY: Yes. 14 Narragansett Bay, I think, Insurance Company; 15 Tower insurance Company -- 16 And for one moment, I'm blanking on the 17 third. 18 Dan doesn't have it because that's not his -- 19 SENATOR SANDERS: If you give it later -- 20 BENJAMIN M. LAWSKY: -- that's not his area. 21 SENATOR SANDERS: If you give it later, that 22 would be fine. 23 BENJAMIN M. LAWSKY: Yeah. 24 It will come to me. 25 SENATOR GRIFFO: I -- just a quick -- 1 We've talked about you coming to the 2 Banking Committee this spring again, to go over some 3 of these issues, which I appreciate. You've always 4 been responsive and receptive to doing that. 5 And we've also talked about a bank tour, 6 hopefully this summer, where we can go and visit 7 some of the institutions -- the financial 8 institutions. 9 Quick question: 10 I know the department has issued some 11 letters recently to the banks, outlining -- 12 requesting procedures. 13 Do you envision any additional directives 14 that you're planning at this point in time, that you 15 can share with us before we get a chance to sit down 16 again sometime later in the spring? 17 BENJAMIN M. LAWSKY: Do you mean related to 18 "Sandy," or -- 19 SENATOR GRIFFO: In both: specific to 20 "Sandy," or in general right now. 21 Because, I know we're going to try to put 22 something together soon, but I just thought we'd 23 take an opportunity right now while you're here. 24 BENJAMIN M. LAWSKY: Sure. 25 So we are -- we're very focused right now on 1 a number of issues on the banking side in the 2 department. 3 One of them, unrelated to, really, what we're 4 talking about today, is -- really, it's a cyber 5 security. 6 And, we have real concerns that many of our 7 institutions, and this is not just a New York 8 phenomenon, but this is all over the country, 9 frankly, are not adequately prepared for a serious 10 cyber attack. 11 And, we want to make sure that our 12 institutions are really ready for a 13 worse-case-scenario event. 14 And that's a very negative way to think about 15 the world, but we think it's a safe -- safer way to 16 be prepared, so we're spending a lot of time, 17 internally, regarding that. 18 We're also spending a lot of time, just 19 generally, with our community banks. 20 We put out a report recently on the 21 importance of community banks to New York State. 22 And, we're going to continue to work closely 23 to help our community banks, especially because, 24 sometimes, federal regulation is geared towards our 25 biggest banks, our too-big-to-fail banks, and is 1 not adequately tailored to the unique 2 characteristics of our smaller community banks. 3 And we want to make sure, down in Washington, 4 that the voice of the community banks is being 5 adequately heard, so they're not unreasonably hit 6 with compliance costs that they simply just can't 7 bear. And this is especially important in upstate 8 New York. 9 And then, third, we're thinking a lot about 10 how we -- when we occasionally put monitors inside 11 of our banks when we found some issues there, we 12 think that, we, as regulators, can do a better job 13 of working with those monitors, to ensure that, 14 over time, they're doing what they're supposed to be 15 doing. 16 And we've seen something of a problem over 17 the years, where a regulator or a law-enforcement 18 officer puts a monitor inside a bank, announces 19 that they've done some great good and reformed the 20 problem at the bank, and then moves on to the next 21 issue. 22 The monitor then goes and works inside the 23 bank, is paid by the bank, and never hears again 24 from the regulator. 25 And we think that that's a recipe for -- 1 again, not with any ill will, but for, potentially, 2 an ineffective monitorship. 3 And we're doing a lot of thinking about, 4 going forward, how we -- how we prevent that. 5 So, for example, we put a monitor inside a 6 mortgage servicer recently, to make sure they're 7 complying with mortgage-servicing reforms. And 8 we're now taking a much more active role in 9 monitoring that, that -- monitoring, or managing, 10 that monitor. 11 And I think that will really improve the 12 quality of improvements we hope to see at the 13 servicer. 14 So, those are some of the big things we're 15 working on. 16 SENATOR GRIFFO: Any other member have any 17 questions? 18 I want to now recognize Senator Marchione. 19 Thank you for being here, appreciate your 20 attendance. 21 With that, then, Superintendent, I want to 22 thank you, sincerely, for your testimony today; for 23 your time, you've been very generous, and also for 24 your leadership with the department. 25 Thank you very much. 1 BENJAMIN M. LAWSKY: Thank you. 2 Thank you very much. 3 SENATOR GRIFFO: I'm going to ask now that 4 Mr. Theofan and Ms. Ford please come down. 5 We now have Charles Theofan, who is the 6 deputy Nassau County executive who is appearing here 7 on behalf of County Executive Ed Mangano; 8 And, also, Denise Ford, who is a county 9 legislator, also a Long Beach resident who, 10 unfortunately, lost her home during the storm, 11 "Superstorm Sandy." 12 So we want to thank Mr. Theofan, and also 13 Miss Ford. Thank you very much for being here 14 today. 15 SENATOR MARCELLINO: Mr. Chairman, if I may 16 apologize to these two people from my county, I have 17 to leave. I have a hearing that I'm going to be at 18 on the island. 19 So, I apologize to the Committee, and I 20 apologize to them, but I do have your written 21 testimony, and we'll be pursuing that. 22 DENISE FORD: Thank you, Senator Marcellino. 23 SENATOR MARCELLINO: Thank you. 24 SENATOR GRIFFO: Thank you, 25 Senator Marcellino. 1 And as I had indicated, we have members who 2 are in a lot of different directions today, but we 3 thought this was a very important subject, and we 4 wanted to take advantage of the opportunity we had 5 to do this today. 6 So, I sincerely thank both of you for your 7 attendance here, and we'll let you start then, 8 Nancy -- Denise? 9 DENISE FORD: It's Denise. 10 Greetings, Senators. I'm Nassau County 11 Legislator Denise Ford. 12 And I just want to first go on the record, I 13 didn't lose my whole house. I lost half. 14 I think Mr. Theofan was the one who lost 15 his house. 16 But I want to thank the Senate Committee on 17 Banks for this opportunity to address this body. 18 Not only am I the Nassau County legislative 19 district for whose whole area went underwater during 20 "Sandy," I am also a homeowner who suffered along 21 with my constituents and neighbors. 22 We are all aware of the damage and the 23 destruction caused by this superstorm and the 24 challenges we all faced immediately after this. 25 Residents were forced out of their homes 1 and had to relocate, and too many are still not 2 back. 3 Those that remain lived in half a house and 4 are still trying to repair and rebuild. 5 We dealt with no power, heat, and hot water, 6 and even a gas shortage. There was no communication 7 with the outside world as we had no cell phones, 8 newspapers, TV, or even mail. 9 We had to gut the affected areas of our 10 homes and were forced to throw out our possessions, 11 which included furniture, clothes, toys, as well 12 as our antiques, jewelry, and memories. 13 We struggled through Thanksgiving and the 14 holidays with the belief that things will get 15 better. 16 We now come to the next chapter in this 17 disaster as residents and business owners start 18 the process of dealing with their insurance 19 companies. 20 Claims were filed under flood or home, as 21 well as the loss -- for the loss of the vehicles. 22 Business owners seemed to have a more 23 difficult time as they may own the business, but not 24 the property. 25 It was after this disaster when so many 1 realized what was covered and what was not: 2 residents finding out that they did not have 3 contents' coverage with their flood insurance; and 4 those that did, found out that it did not matter as 5 contents are not covered in a basement. 6 Business owners thought that they had this 7 coverage and paid for it, but a disclaimer buried it 8 in the body of their policies voided this coverage. 9 There is also confusion about loss of 10 business coverage as well, which has caused a lot of 11 stress and frustration for our small-business 12 owners. 13 After filing, a claimant waited for an 14 adjuster, which took some time, as thousands of 15 properties were damaged. 16 Some residents hired public adjusters to 17 assist in the process of filing a claim. 18 Regardless if one worked directly with the 19 insurance company or through a public adjuster, 20 responses took weeks, and months. 21 While most insurance companies sent 22 advances, some did not. 23 This money is needed, as we needed to pay for 24 necessities, such as new boilers, hot-water 25 heaters, electric panels, and wiring. 1 Even for those that received the advances, 2 the funds did not cover everything, as we also had 3 to pay for mold mitigation and the gutting of the 4 damaged areas. 5 It was very frustrating for those that have 6 insurance to have to wait for what they paid for, to 7 see those that had no insurance to immediately get 8 funds from FEMA. 9 The next chapter can be titled "How long can 10 you hang on?" as so many are waiting for the 11 estimates from the adjuster and the amount that will 12 be sent to them. 13 This has caused frustration and uncertainty, 14 as they do not know how much they will receive, as 15 this will dictate what they can afford in 16 rebuilding. 17 There are different levels of damages. 18 Some homes were partially affected, and 19 many were completely destroyed. 20 What we are now finding, is there are no 21 rhyme or reason as to how an insurance company 22 determines the amount that a policyholder will be 23 paid for their losses. 24 For example, there are those whose homes 25 need to be rebuilt, are getting just a little bit 1 more than those who only lost a floor of their home. 2 After dealing with insurance companies, we 3 get to deal with banks. 4 Those who are -- those of us who are 5 fortunate enough to have received the settlement 6 checks have been required to sign and send the 7 checks to the banks. We are then required to send 8 invoices for work done. 9 Residents have to find a contractor, who 10 must fill out forms with their tax ID numbers and 11 other information. 12 After sending all the required documents, 13 the homeowner has to wait for a bank inspector who 14 certifies that the work has been properly -- done 15 properly. 16 After this, funds will be released after a 17 time, and the remaining funds, if any, will 18 eventually be sent to the homeowner. 19 I can understand why banks want to make 20 sure that the properties that are financed by them 21 are restored, as it is beneficial for a neighborhood 22 that homes are not left in a damaged state, bringing 23 down property values in the neighborhood, but I do 24 have a problem with the fact that this process 25 takes as long as it does. 1 This is just a small bite -- soundbite and 2 picture of life after the disaster of "Sandy." It 3 is hard to convey what we are all going through 4 still. 5 As I stated, many are still not back in their 6 homes as they try to secure the funds to rebuild 7 their homes. 8 Parents, along with their children, are 9 living in small apartments or with relatives 10 away from friends and neighbors. 11 These children have a longer commute, as they 12 want to attend their school, to be with their 13 friends and teachers, so to have normalcy in their 14 lives. 15 Seniors are facing the loss of their 16 memories, and fearful of when, and if, they can 17 return home. 18 Small-business owners have suffered from 19 the double-edged sword of losing their business 20 which is the source of their income, and losing 21 their homes as well. They do not have the money 22 to rebuild both. 23 While we work to rebuild our homes and 24 neighborhoods, we try to help with restoring our 25 houses of worship and the school buildings that are 1 closed due to the storm. 2 Our neighborhoods are still deserted and 3 dark. We are working-class neighborhoods who have 4 paid up insurance premiums, which I would like to 5 add, have been rising dramatically. 6 When it was time for us to collect, we have 7 found hurdles that seemed to slow down our claim 8 process. 9 The banks that trusted us, by giving us 10 mortgages on our properties, have seemed to become 11 suspicious as they hold on to the money we need to 12 rebuild and restore. 13 I am appealing to you, our representatives, 14 to help us with dealing with our insurance companies 15 and banks. You hold the power to help facilitate 16 the processes for filing and receiving the necessary 17 funds to rebuild. 18 Put pressure on these companies to move 19 quicker and to be more responsive to their 20 clients. 21 And I guess it was suggested before, but 22 perhaps a one-stop center can be established where 23 the insurance companies and banks are in the same 24 location. 25 As we look to the future, you should look 1 into the premiums the insurance companies are 2 charging, as well as the deductibles, as we know 3 that they will increase, and have already been -- 4 and these have already been a financial burden on 5 many. 6 We need a better understanding of our 7 insurance policies, and this can only be achieved 8 through an outreach by this Committee, and I will be 9 happy to join with you on this. 10 There are hundreds of stories that I can 11 tell you of the obstacles and hurdles that 12 residential and business owners are dealing with due 13 to this storm. 14 We feel as if everyone have gone on with 15 their lives unconcerned what is happening to 16 ours -- in ours. 17 Despite promises that there would be no red 18 tape, we are tied down in it. 19 I am sure that you saw the homeowner in the 20 west end of Long Beach who wrapped red tape around 21 her home. She speaks for many, too many. 22 We have lost so much, but do not let us lose 23 faith in our state government. 24 Listen, act, and help. 25 And I thank you once again for this 1 opportunity to address this Committee. 2 SENATOR GRIFFO: Thank you, Denise. 3 Mr. Theofan, and, again, we're sorry about 4 the loss of your home. 5 And, thank you for correcting the record. 6 CHARLES T. THEOFAN: Good afternoon, 7 Senator Griffo, and members of the Committee. 8 My name is Charles Theofan. I serve as 9 deputy county executive of Nassau County, and I'm 10 here today representing County Executive 11 Edward P. Mangano. 12 The proceedings today are relevant to 13 thousands of homeowners in our county who suffered 14 devastating damage in the storm. 15 Some of us -- and I say "us," because my home 16 on the south shore was ravaged by six feet of flood 17 water -- we were fortunate, in that we had the 18 financial means to immediately hire contractors 19 without having to wait for insurance proceeds. 20 Our good fortune continued, in that our 21 flood-insurance claim was settled quickly, and the 22 lending institution that holds our mortgage, 23 TD Bank, endorsed a rather substantial check on the 24 spot. 25 Others were not so fortunate. Not having 1 the means to jump-start their recovery, and some 2 experiencing inordinate delays in settling their 3 claims, they then experienced a practice that they 4 never anticipated, which they perceived as 5 unreasonable restrictions the banks were placing 6 on the release of their insurance proceeds. 7 These delays, without question, prevented 8 perhaps thousands of families from returning to 9 their homes. 10 We received a multitude of complaints from 11 desperate residents who have experienced this 12 dilemma. 13 Unfortunately, the general public, and even 14 I, was not aware of the fact that these lending 15 institutions were simply abiding by rules 16 mandated by Fannie Mae and Freddie Mac, that were 17 imposed to eliminate fraudulent practices, 18 primarily by unscrupulous contractors who talked 19 homeowners into giving them large deposits, and 20 then abandoning the homeowners, leaving them 21 without the funds to hire other contractors. 22 We're all gratified by the Governor's press 23 release on Tuesday, and the work done by this 24 Committee and the Executive Branch has truly come to 25 the aid of bewildered homeowners. 1 We now have a workable framework that will 2 protect homeowners, and we all have a better 3 understanding of the process. 4 Thank you. 5 SENATOR GRIFFO: Again, I want to thank both 6 of you for being here. 7 I would ask, first, Mr. Theofan, do you 8 find that, particularly with the property damage, 9 was there any attempt to reach out to you by any of 10 the financial institutions, like the banks or 11 insurance companies, as relative to the damage that 12 you had received, and suffered? 13 CHARLES T. THEOFAN: Well, as I said, my own 14 particular case, I was very fortunate, in that my 15 lending institution was extremely cooperative in 16 every respect. So, I can't really speak for 17 others. 18 SENATOR GRIFFO: But did they reach out to 19 you, or did you -- you made the connection with 20 them; correct? 21 CHARLES T. THEOFAN: No, we went to them. 22 But as I said, I brought the check to a 23 branch on a Sunday afternoon, and the -- and it 24 was -- it was endorsed on the spot. 25 SENATOR GRIFFO: Do either one of you feel, 1 Denise or Charles, that more information could have 2 been disbursed by the insurer of the bank? 3 I, mean, that's what I -- the sense I'm 4 hearing. 5 I read that they could have did a better job 6 of getting that information out to you, to providing 7 you that information? 8 DENISE FORD: I think it would have been very 9 helpful, because a lot of times, especially, we 10 found in a disaster such as this, you know, rumors 11 start, and then people start getting upset because 12 they hear, like, if somebody will say something, and 13 then they start thinking it's the truth. 14 So, it adds to a level of frustration, you 15 know, not having that knowledge. And then -- you 16 know, because everybody thought that the banks 17 were going to hang on to the checks, never give 18 them to us. We didn't know when the insurance 19 companies, maybe they really weren't going to cover 20 everybody. 21 So I think that -- you know, and then nobody 22 gets a response from the insurance company, because 23 there are many people, hundreds, if not thousands, 24 that are still waiting for their final settlement 25 check from the insurance company. 1 But then when you go to the bank, it's -- 2 then you find out, when we first got the advance 3 check, it was -- you know, thankfully, people before 4 me had already gone, and they found out that the 5 check was going to be made out to the mortgage 6 company, and then you needed a letter and -- from 7 the insurance. 8 So I already knew before I went to the bank 9 that that's what I had to do. 10 But, now, with the final settlement check, 11 it's -- you know, I have to admit that -- and I will 12 say that, Wells Fargo, when I reached out to them 13 and told them that I had the settlement check, I 14 asked them what was the process. 15 But a lot of people dealing with their 16 banks are not really truly aware of what they need 17 to send in and not send in. 18 So it's -- I think information would be help. 19 SENATOR GRIFFO: And DFS had a mobile command 20 unit. 21 Was that helpful? 22 And do you think people really utilized that? 23 DENISE FORD: You know, I have to say that, 24 that DFS unit, had I think the trailer had been in 25 my area, you know, [unintelligible] Island Park, 1 there were times when we called up and they were 2 very agreeable about going into Oceanside and 3 Long Beach and other affected communities. 4 So, we did direct residents and business 5 owners, and we did have meetings, so that these 6 people that needed the help, would be able to get 7 it. 8 But I really think that -- I think that we 9 probably could have used a few more of those vans, 10 because I think -- once the -- once people starting 11 getting information -- valid information, okay, then 12 it seemed to help allay a lot of fears and stress. 13 SENATOR GRIFFO: Charles, do you feel that 14 there's been some serious challenges or issues 15 with unscrupulous contractors? 16 Are you finding that to be a problem 17 throughout the county? 18 CHARLES T. THEOFAN: Well, you know, 19 fortunately, Nassau County, its Department of 20 Consumer Affairs, you know, has a very good 21 policing of contractors. 22 So, you know, homeowners, if they asked the 23 right questions, and if they make sure that the 24 contractors doing the work are licensed, can rest 25 assured that they are very well protected by county 1 government. 2 You know, though, unfortunately, I think, in 3 desperation, a lot of people will allow who's ever 4 available to do work, to do that work. 5 But, to be perfectly honest, I'm sure that 6 there are complaints. 7 I don't think we've had a very widespread 8 problem with unscrupulous contractors, that I know 9 of. 10 SENATOR GRIFFO: Also would like to urge you 11 to continue -- 12 I know you're looking to the State for 13 involvement and assistance, and rightly so. 14 -- if you have any specific suggestions of 15 what we can do relative to the response here to 16 "Sandy," from a financial-services level, please 17 share that with us, because we would like to have 18 that. 19 Or, if you want to state something now, or in 20 the future, please. 21 DENISE FORD: Well, I will definitely get 22 back in touch with you, because I have a list. 23 And, you know -- but I think that I -- I 24 would just like to remark on one issue, with the 25 mortgage companies. 1 And, you know, unfortunately, some people are 2 behind in their mortgages. 3 And I think that, you know -- and I don't 4 know whether or not it's possible, when you look at 5 the banks, and you look at those people that may 6 be behind, I'm hoping that the banks will look at: 7 When did that homeowner start going behind? 8 Was it prior to "Sandy"? 9 And I understand that, like, it was prior to 10 "Sandy," and, maybe, for whatever financial 11 consideration, but, hopefully, you'll take a look at 12 those that may have started falling behind after 13 "Sandy." 14 Because, we have too many homeowners that 15 have been moved out of their homes. Their homes 16 are either collapsed or completely destroyed. 17 They're forced to live in other locations. They may 18 have lost their job. And because of "Sandy," and 19 because of the situation, they may be having 20 problems making the mortgage payment. 21 So I hope that there will be some 22 understanding on the part of this Committee and the 23 Banking Commission, to make sure that, when you 24 look at that, and if banks are going to hold up 25 the money, that they take a look at, as to when 1 those homeowners started defaulting on their 2 mortgages. 3 SENATOR GRIFFO: Thank you. 4 Senator Martins? 5 SENATOR MARTINS: Thank you. 6 Mr. Chairman, and my Senate colleagues, I 7 just want to take the opportunity to recognize, 8 Legislator Ford, Denise, thanks for being here. 9 I'm sure you have a list. I'm sure you have 10 many lists. 11 But, it is -- I would be remiss if I did not 12 point out that, as this storm was hitting, and in 13 the aftermath of the storm, it was Denise who was 14 down in Long Beach, in the thick of it, leading the 15 way, and standing tall. 16 And that should be recognized. 17 And, thank you very much for your testimony 18 here today, but thank you very much for your 19 efforts over these last four months to protect 20 the residents that we represent. 21 So, thank you. 22 DENISE FORD: I thank you very much, 23 Senator Martins. 24 And, you know -- I mean, even for me, you 25 know, it's, like, it -- it was absolutely 1 devastating. 2 And it was bad enough, like, when you see 3 your own home, or your family's homes, but, you 4 know, unfortunately for me, I was the only 5 legislator out of 19 that -- whose whole district 6 was impacted by "Sandy." 7 So, you know, we see, every day, we're living 8 through the struggles of our homeowners, our 9 business owners, and families. 10 And -- but I -- and I do have to give credit 11 back to the State, because I was involved when the 12 State task force came down, and I think we met in 13 Freeport. And I was very -- and I went back to a 14 lot of the residents, to say: You know what? The 15 State is really listening. You know, we have 16 friends in the Senate. 17 And, you know, I think that helped had a lot 18 of people to know that you're all listening, and 19 that you're willing to help. 20 And, you know, hopefully, we'll be able to 21 get through this. 22 SENATOR GRIFFO: Well, I want to thank you 23 both. 24 County Legislator, thank you for being here. 25 DENISE FORD: Thank you. 1 SENATOR GRIFFO: Deputy County Executive, 2 appreciate you being here. 3 And thank the County Executive too. 4 We appreciate you making the effort to share 5 your stories, and to be present here before the -- 6 to present testimony today. 7 DENISE FORD: All right, thank you very much. 8 CHARLES T. THEOFAN: Thank you. 9 DENISE FORD: Thank you. 10 SENATOR GRIFFO: I would like to now call 11 Mike Smith, the president and CEO of the 12 New York Bankers Association. 13 Mike, thank you very much. 14 We already have the testimony for us, so, if 15 you want to kind of summarize, maybe? 16 Or, I'll leave it up to you, whatever way you 17 want to do it. 18 MICHAEL P. SMITH: Okay, I did bring a 19 summary. 20 SENATOR GRIFFO: Okay. 21 MICHAEL P. SMITH: But there are many 22 points in the written testimony that go to the -- 23 that answer some of these questions that have been 24 raised today. 25 And the process that existed prior to Friday, 1 the post process now, we would view Friday's 2 announcement as significant. 3 And, hopefully, as the Superintendent pointed 4 out, we're going to get more information on this in 5 the weeks ahead, but we're talking about tens of 6 millions of dollars being released. This is 7 through the rules of Fannie and Freddie, as has 8 been noted. 9 I'm Mike Smith. I'm the president and CEO of 10 the New York Bankers Association. We represent all 11 the banks in New York, thrifts and commercial 12 banks, from the largest to the smallest, from 13 Lake Erie to Montauk. 14 And we're very proud, and pleased, to be here 15 today, and commend you, Chairman Griffo, 16 Vice Chairman Farley, and other members of the 17 panel, for calling this hearing, so that we can 18 speak about what the banks have been doing. 19 I do have some experts with me. 20 I just -- John Gang, from JPMorgan Chase, who 21 is an adviser to us, and is an expert in 22 mortgages; 23 And Clare Cusack, our deputy general counsel, 24 is also here, who could be helpful if there are 25 questions that I cannot answer. 1 I certainly would line up with the 2 Superintendent on that. 3 I can say, clearly, since we were affected by 4 "Sandy," business as usual is not the norm in the 5 days and the weeks and the months after the 6 storm. 7 And we've talked about that today. 8 The banks operating in the areas affected 9 were first responders, whether keeping branches 10 opening; maintaining the flow of cash, which we had 11 to work with local officials and law enforcement, 12 because you know there impediments as to the 13 delivery of cash, by virtue of rules dealing with 14 HOV lanes; providing needed supplies, which many 15 of our banks volunteered and supplied; and, also, 16 offering a host of services to local communities and 17 to the city of New York. 18 At the same time, while this was all going 19 on, we have a website that chronicles the millions 20 of dollars that have been given to efforts to 21 help the victims of "Sandy." 22 And I would just point out on one point that 23 was just made about the small-business community, in 24 addition to homeowners, one of the sectors of 25 our economy that was affected severely was the 1 small-business sector. 2 We were well aware of that in the days 3 after this storm. 4 We joined with the New York Business 5 Development Corporation, a consortia of 120 banks, 6 all of our members, to fund an emergency 7 small-business relief fund, which, today, has 8 released over $10 million. These are basically 9 bridge loans of approximately $25,000, to over 10 500 small businesses in the affected areas. 11 This is before any federal funds have been -- 12 have come in to the state. This is an effort that 13 is in cooperation and partnership with 14 New York State ESDC and the New York City EDC. 15 And, in fact, the banks could have -- put 16 forward $20 million into this fund, which was 17 collected. We sponsored, and asked for, and they 18 responded within the first month. 19 And the fund now, with State and City funds, 20 and Goldman Sachs is also involved, is going to be 21 $30 million. 22 And this effort, I think, will be a template 23 across the country. 24 We appear before you today to address the 25 very important subject of this hearing, which is the 1 release of the insurance checks which require 2 double-endorsement by the borrower and the bank or 3 servicer. 4 There's a longstanding practice in place for 5 the disbursement of these funds, which has been 6 referenced, and rules in place by the investors. 7 The distinction here between, portfolio 8 lenders, those who hold the mortgages in their 9 own portfolio, and, servicers, who serve on behalf 10 of investors, such as Fannie and Freddie, there 11 are rules and guidelines in place. 12 By the way, they are the same rules and 13 guidelines that were post "Katrina." 14 The banks have been working with the 15 Department of Financial Services, and, 16 cooperatively, over the ensuing -- the last weeks, 17 and months, in response to those affected by 18 "Storm Sandy." 19 And I would just emphasize again, that the 20 announcement on Friday, which we strongly support, 21 and I know individual members of ours have been 22 asking, "more flexibility," post "Sandy," Fannie and 23 Freddie, to ease their rules, to give servicers 24 more flexibility. 25 Four of the servicers -- major servicers 1 are our members. They have been mentioned at this 2 hearing. But there are other servicers who are 3 not members of our association. 4 The response to this decision on Friday, and 5 recognizing today's date, Thursday, has been the 6 immediate release of tens of millions of 7 dollars. 8 Several of the largest servicers are 9 members, as Superintendent Lawsky has just 10 mentioned, have just announced that they will 11 release 75 percent of funds they receive without 12 documentation. 13 And in my written testimony, we list and 14 document what that means, what that 15 documentation -- is required, or was required, by 16 Fannie and Freddie. 17 And it was -- you know, there's a three-step 18 process, including very thorough documents. 19 With the remaining balance, the 25 percent, 20 to be released upon final documentation. 21 This is a significant step. 22 And I think, recognizing what has been going 23 on, post "Sandy," is -- I believe that the industry 24 has responded swiftly to this action. 25 Other servicers are releasing up to 1 50 percent up front to borrowers that are current, 2 and when there has been a total loss. 3 And in the hearing, and this has been our 4 anecdotal, because we've been working about 5 ten days, getting ready for this presentation, our 6 portfolio lenders, who are not subject to the 7 Fannie and Freddie rules, have had a lot more 8 flexibility. 9 And one bank was mentioned, 10 Ridgewood Savings, which is a member of ours, 11 which is the predominant lender at Breezy Point, 12 which is at the end of The Rockaways, and most 13 affected by this, moved in response to the 14 concerns of their customers, by coming forward 15 with the "affidavit" policy that was mentioned, so 16 they could release 100 percent. 17 But that, clearly, is specific to that 18 geographic region, and certainly would not be 19 applicable as it relates to the larger servicers. 20 Another area of interest should be the 21 response of our banks to forbearance. 22 But I would just point out, that has been 23 made current; is current as of October 29, the date 24 of the storm. 25 So when we talk about current balances, as I 1 have been informed by John, it's October 29. 2 So if you're looking at the borrower's 3 record, pre-storm, not post storm, so, we go into a 4 first stage, where the banks and the major 5 servicers agreed to have a 90-day forbearance. 6 It is now my understanding, and can be 7 documented by a number of our banks, including 8 John, that that now is going to be extended beyond 9 that. 10 And as I understand it, since I had been 11 asked that -- and, again, this is anecdotal, I 12 don't -- I can't speak for any individual 13 institution -- the way that this forbearance, these 14 payments would be attached at the end of the 15 mortgage. 16 In other words, you don't have to come up 17 with a large payment in the sixth month, 18 eighth month, or whatever. 19 And I think the other things that the 20 banks have been doing, in terms of waiving fees, 21 providing an emergency website, emergency numbers, 22 and we have them on our website, which is a public 23 website, NYBA.com, and getting the word out, which I 24 know, and that's what this hearing is about today 25 this is extraordinarily important: communications, 1 changing and making policies more flexible. 2 We stand ready to work with you, the 3 State Legislature, which we have always done as an 4 association, to work with our member banks, and to 5 answer any questions you have, going forward in the 6 days and weeks ahead. 7 We're going to respond to this. We've 8 already learned much, and we view ourselves as 9 partners with you. 10 Thank you very much. 11 SENATOR GRIFFO: Thank you, Mike. 12 I appreciate that. 13 And I've got a couple of questions, but let's 14 start with what you just ended with. 15 As you move forward right now, from an 16 industry perspective, how can you, and how will you, 17 handle events like this differently? 18 MICHAEL P. SMITH: Well, we recognize that 19 this was an extraordinary event. 20 We recognize that it is -- when this happens, 21 that business -- in this case, banks -- and our 22 organization, speaking for our organization, have to 23 be viewed as partners with the government and the 24 public sector. 25 And, government, I'm talking, whether it's 1 the local government, to the state government, and 2 in this instance, the federal government, because we 3 did have -- we do have a quasi. I know it's called 4 a "GSE," federal agencies, and that federal 5 regulator who was asked just on February 12th to 6 act. 7 I think we've learned a lot in terms of the 8 fact that you need flexibility, you need to be 9 partners, and you need to get the word out. 10 And I believe -- our survey of our members 11 is, they have procedures in place, and had 12 procedures. Certainly, our -- the national -- 13 nationwide-based mortgage lenders, because they 14 did go through "Katrina." And we've had our own. 15 We had "Irene" not long ago. 16 But, that, where -- and I would agree, 17 aligned with Superintendent Lawsky's point, it's 18 very important that the regulator executive branch 19 have the ability, working with the industry, to 20 respond immediately. 21 And that, you know, we come before you now to 22 talk about, if there's a need for legislation. 23 But that, certainly, flexibility and action, 24 and, knowledge of the system. 25 It is not -- I mean, speaking as someone who 1 is not a -- I'm not in the mortgage lending 2 business. I represent an industry that is. 3 But this is -- can become, and as we have 4 seen, complicated, certainly at the -- when you get 5 to the large checks being distributed. 6 We said 85 percent of the claims have been 7 distributed, but the larger distributions -- and, 8 now, of course, with this announcement, it becomes 9 moot, had a whole series of documentation attached 10 to it. 11 SENATOR GRIFFO: But you said this was an 12 extraordinary event, and -- but -- surely it was, 13 but they're more prevalent now. 14 We've discussed the fact that, unfortunately, 15 these challenges will continue to recur. 16 So, are we in a better position? 17 What have you learned from this that, now, 18 you will implement? 19 For instance, your communication, as we've 20 heard from others, was insufficient in many 21 instances. 22 Do you now, as a bank -- as the 23 institutions have come together, have you began to 24 look at new ways to communicate, to outreach? 25 Are these all things that will be considered, 1 and possibly implemented, as a result of dealing 2 with severe weather conditions such as we're 3 experiencing more regularly, unfortunately? 4 Or do you not believe that things can be 5 better and done differently? 6 MICHAEL P. SMITH: Oh, no. Things always can 7 be improved. 8 And we're in this dynamic communications 9 situation, where, you know, the bringing together of 10 the various parties, which is a role of ours on 11 our side with our members, with governmental 12 agencies, with various communication networks, in 13 terms of what is out there. 14 And I do understand that, in this, the 15 victims of this storm may have lost a certain 16 amount of their communications, and that -- but that 17 it's very important that it be cooperative from day 18 one. 19 I can tell you, which is in the written 20 testimony, that we were working with the State and 21 local authorities in -- within two days after 22 "Storm Sandy," as it related to just emergency 23 services. 24 And working with DFS, and I -- and we would 25 align ourselves with the Superintendent's comments, 1 that, day one -- day two, let's put it that way, 2 day three, that we would have a meeting, and bring 3 our people in, with DFS, and what needs to be done, 4 whether it be at the local or federal level, and 5 that, recommendations or actions that need to be 6 taken, either be brought, if they needed legislation 7 or actions by the governor. 8 So I think the lines of communication are 9 wide open. And like in most instances, you know, 10 that's -- that's a major part of the solution. 11 SENATOR GRIFFO: Let me try to get into more 12 specifics then. 13 For instance, the DFS has put together a 14 16 point best-practice proposal, that -- 15 MICHAEL P. SMITH: Yes. 16 SENATOR GRIFFO: -- can you abide by most of 17 those, or do you have any issues? 18 MICHAEL P. SMITH: Yes. 19 SENATOR GRIFFO: You can? 20 MICHAEL P. SMITH: My understanding, I mean, 21 we're talking about responding to things in 22 real-time, in terms of days, not months, in 23 terms of looking at this. 24 But our members have -- those members who 25 have responded have told us that they are in 1 compliance with, you know, almost all of the best 2 practices. 3 There would be some problems -- 4 And, John, can -- you can attest to this. 5 -- where getting an inspector, although, 6 that's been minimized now that we've got the 7 75 percent release from our largest servicers, but, 8 you know, instead of a day, it might be two days. 9 Instead of a processing within a day, you know, 10 you've got to give a little bit more leeway. 11 But our banks have told us that they are very 12 much in compliance with -- with maybe one or two 13 exceptions. 14 Is that -- John, is that true? 15 SENATOR GRIFFO: Is there a way -- you speak 16 about inspections. 17 Is there a possible way to merge those 18 inspections by the insurers and the banks so 19 homeowners don't have to wait for separate 20 inspections? 21 Is that a possibility? 22 MICHAEL P. SMITH: Well, my understanding -- 23 I can't speak for the insurance industry. 24 There's an adjuster that comes out, right, 25 John? 1 JOHN GANG: The insurance would be the 2 initiator. And then the subsequent construction 3 inspections would -- 4 SENATOR GRIFFO: You can come forward. 5 MICHAEL P. SMITH: Yeah, why don't you come 6 over, John. 7 John can talk to the process. 8 JOHN GANG: I would think that, certainly, 9 the insurance person, as the adjuster is making that 10 initial assessment of the damage and the claim 11 amount, and then, typically, the insurance is out of 12 that process. 13 And as the construction unfolds, as a 14 servicer, in oversight, we are working to get those 15 inspections, to make sure that the construction is 16 being done as per the plans of the contractor. 17 SENATOR GRIFFO: So is there a way to merge 18 that? 19 Are you saying that there is a way to merge 20 that then? 21 JOHN GANG: I think the insurance adjuster's 22 report is: This is how much damage, and this is the 23 work you need to go do. 24 I think that's the initiator to go -- and go 25 and actually, Here's the check to go do that. 1 And then -- then you actually have to go and 2 have the action, go build that, and repair and do 3 the work. 4 I'm not sure if they can be lengthened. 5 SENATOR GRIFFO: Is there any way that 6 insurers can release insurance funds to the 7 homeowner without this dual-endorsement requirement? 8 JOHN GANG: I think it was mentioned, you 9 know, there is some practice out there where smaller 10 checks, 7,000 is around -- 11 SENATOR GRIFFO: But can we -- 12 JOHN GANG: -- you know, I think that's -- 13 right now, I think the work that Fannie and Freddie 14 have done, their current policy, if somebody has a 15 fire, individual, whatever, it's $10,000. 16 In FEMA-designated counties, Fannie, 17 Freddie's, current, is to bump that up to twenty. 18 So you can walk in -- if you're current, and 19 walk into a branch and get those funds on the spot. 20 And, so, is there activity? 21 I think, you know, certainly, the takeaway 22 is: Is there situations when you might want to let 23 more money go back out than twenty? 24 So, the ten going to twenty in 25 FEMA-designated areas, is that enough? 1 And I think that's a good takeaway. 2 SENATOR GRIFFO: And, Mike, do you think 3 the -- overall, that banks were prepared for the 4 volume that occurred as a result of the storm, or 5 was it something that just overwhelmed? 6 MICHAEL P. SMITH: Well, extraordinary event, 7 thousands affected. 8 John, I know you had procedures in place. 9 You might want to mention how these funds 10 were released in the initial phase, and how they 11 were, you know, paid out, and what we're going to be 12 seeing in terms of the flow. 13 But there is a time frame. 14 Four months we know is the extent of the 15 storm today. 16 But, there was in place, as of Friday, the 17 step-by-step process. 18 And, also, there are emergency releases, 19 John, that you might want to mention. 20 JOHN GANG: And I think the whole process, 21 you know, from the day "Sandy" was happening, we 22 were working with our insurance vendor to create 23 Saturday and Sunday hours. 24 So the day of, they were moving around and 25 getting people to work overtime, initially, to work 1 Saturday and Sunday to cover. 2 And everybody knows, when people, 3 hopefully, they're still working, and they were not 4 impacted from an employment perspective, extending 5 hours to 12:00; and more importantly, having 6 Saturday and Sunday hours, that was the day of the 7 event. 8 And they actually implemented first week. 9 So, that's Chase's experience. 10 The vendor we use to do a lot of that is used 11 by Wells and Citi too. 12 So I think -- that, I think, we were in good 13 shape, but we also made some pretty quick responses. 14 We track the key events that Mike talks 15 about, in terms of, when we receive a check, how 16 quickly did we get that check out? 17 And we overnight that, in all cases now, at 18 our expense. 19 From when a customer calls, and asked for 20 an inspection, we have a turnaround time, typically, 21 it's averaging about one day, to get that customer 22 on the phone and schedule it, at the customer's 23 convenience. 24 So it's not always, if they call on Monday, 25 it might be that Saturday we go to the house, 1 because that's the best time to reach the customer 2 and/or contractor. 3 And then, subsequent disbursements, which, 4 with this new announcement, really eliminates 5 that. 6 You know, we generate a 75 percent, and then 7 we wait for the final repairs. And even that, we 8 have some flexibility. 9 If you're pretty close to 100, we're going 10 give you the remaining of the funds. 11 SENATOR GRIFFO: Mike? 12 MICHAEL P. SMITH: Chairman, I might add to 13 your question also, about what we can learn from 14 this, and to go forward: 15 We supported the establishment of the 16 Department of Financial Services. 17 And with insurance and with banking, working 18 with the DFS, going forward, and certainly in tandem 19 with this Committee, looking at ways that you 20 could possibly address, without giving specifics 21 today, more -- I mean, I think it was important, I 22 think we've learned that that move, as was mentioned 23 earlier, was probably a good move. 24 And that the support that you gave, and the 25 others gave, to that new department, that might be 1 a template, and that we could have meetings. 2 Going forward, we'll have a task force. 3 We're going to have a permanent group, 4 permanent meeting. 5 We recognize that this is not -- you know, 6 could happen again. 7 We'll have a permanent group dedicated to 8 working with the DFS and the State on this. 9 SENATOR GRIFFO: Very good. 10 Senator O'Brien? 11 SENATOR O'BRIEN: Thank you, Mr. Chair. 12 And thank you, Mr. Smith, for being here. 13 I know that you've said in your testimony 14 that, as of this date, approximately 85 percent of 15 claims have been paid in full. 16 And, earlier, in the Superintendent's 17 testimony, he indicated he thought that the 18 relaxation of rules by Fannie Mae was a 19 significant event in dealing with the remaining 20 funds. 21 Would you characterize it the same way? 22 Is the relaxation of Fannie Mae's 23 guidelines significant with respect to remaining 24 proceeds held? 25 MICHAEL P. SMITH: Well, when you have -- the 1 number of claims and the number of released in the 2 early phase were the smaller denominations, or that 3 emergency release; so, therefore, you know, you 4 have, obviously, a high percentage there. 5 We are now dealing with larger checks, 6 right, John? 7 And we're dealing with larger checks; so, 8 therefore, the dollars amount should be 9 significant. 10 We would share, clearly, in his view that it 11 was a significant decision on Friday. 12 And, certainly, in the next week or two, 13 hopefully, you'll be getting a report on that. 14 And the DFS I know is collecting that. 15 So, we do view that decision, as it relates 16 to that remaining 15 percent, but it could be -- 17 it's a big dollar amount. 18 SENATOR O'BRIEN: With respect to 19 Fannie Mae's temporary relaxation of its 20 requirements, that has, of course, the risk of 21 setting some precedent for future disasters. 22 Is it your sense that your members are 23 comfortable if -- if what -- in future instances, 24 where the federal government may declare a disaster 25 area, that similar treatment from Fannie Mae would 1 be appropriate? 2 Would your members be comfortable with that 3 in the future? 4 MICHAEL P. SMITH: Well, I think that the 5 fact that four or five of them have now have 6 endorsed and support the policy, have the policy in 7 effect, and they're a significant portion of this 8 mortgage sector affected by "Sandy," I would say 9 that that certainly would be viewed as a precedent. 10 And, that, whether it be applied in -- you 11 know, how you define "emergency" is important. 12 But I might add, that I think what we're 13 seeing, to some extent, also, too, is the 14 recognition by the Federal Housing Finance Agency 15 and Fannie and Freddie, that practices -- good 16 practices, best practices, are being used by 17 banks as they would do with their own portfolio 18 loans, might be the best way to proceed. 19 Would that be -- I think that's consistent 20 with our members. 21 And, certainly, you have to understand, we're 22 having conference calls, basically, on a daily 23 basis, and some of these announcements were just 24 made yesterday. 25 SENATOR O'BRIEN: I think the Superintendent 1 suggested from data that he collected, that 2 something like 40 percent of the funds still held, 3 proceeds still held, were for borrowers whose loan 4 payments were delinquent before "Sandy." 5 And I think that there are some that might 6 suggest that you have -- your members have an 7 interest in securing its collateral, irrespective of 8 whether or not a loan is delinquent or not. 9 But I also understand, presumably, that 10 means that there are additional risks with those 11 loans, in terms of turning money over to folks. 12 And I'm just wondering what additional 13 steps then you have to take, where the industry 14 perceives are important to take, in instances where 15 loans were delinquent when an event like this 16 happens. 17 MICHAEL P. SMITH: Well, the loans, as we 18 have stated in our testimony, and I've stated, you 19 know, as you've just stated, obviously, there is 20 collateral involved. 21 There are federal and state rules as to the 22 protection of the collateral. These are 23 institutions -- public institutions, in most 24 cases, and you have to follow those rules, and you 25 can't waive those rules. 1 If you're an institution, it requires an 2 action, as we saw on Friday. 3 But I have inquired about practice, as it 4 relates to loans that were not current prior to 5 October 29th. 6 And I would, again, here you have a 7 practitioner who can comment on an industry 8 practice, as to what is done, but my understanding 9 is, there's an attempt here to be flexible in the 10 application of those rules. 11 And, John, would you want to comment on this? 12 JOHN GANG: Sure. 13 So the disbursement -- the first disbursement 14 still is that one-third. So if the customer had a 15 100,000 claim check, we would deposit that and issue 16 33. 17 The only caveat, and it was slightly 18 different from when we started at 33, was, for a 19 borrower who was delinquent before the event, they 20 need to supply a little bit more documentation. 21 They need to -- because that initial check will have 22 the contractor's name on it. 23 And in order to get that, we need a W-9 from 24 the contractor because we want to make sure we're in 25 right with the IRS. 1 So there is a little bit extra documentation, 2 to be honest. That customer, in some cases, a 3 couple of months down, or in foreclosure. Or 4 might not even be living in the property. It might 5 have been an investment property. 6 So, we just want to make sure that the funds 7 are not -- because that person hasn't paid their 8 mortgage, hasn't demonstrated financial stability in 9 some cases, so we want to make sure, if that money 10 goes back out, there's a little bit of higher 11 control to ensure that the repairs are being done. 12 Which is -- you know, our objective, we say, 13 is exactly what the homeowner wants. 14 We want that property repaired to where it 15 was on October 29th; and in some cases, better, 16 because, you got a newer kitchen, newer cabinets, 17 newer floors, whatever. 18 And, really, we're aligned. 19 And this is an emotional situation, trying to 20 connect with customers, and be as flexible as 21 possible, but have some control, is really a 22 day-to-day challenge. We try to bend as much as 23 possible. 24 I think this -- certainly, the 75 percent is 25 a gigantic bend, but, you know, we all want to be in 1 control too. 2 So, we don't want to create another problem, 3 on either side of this thing, where repairs don't 4 get made. 5 SENATOR O'BRIEN: Thank you. 6 And, finally, do you think that the 7 Superintendent's data would be consistent with your 8 sense that, of those where proceeds are still being 9 held, that it's something like 40 percent have an 10 additional issue, like a borrower who is delinquent 11 before the event? 12 JOHN GANG: Yeah, our number, we track this 13 every day, I think it was 34 percent yesterday, or 14 the day before, when we cut those numbers. 15 So, we're pretty close. I think around that 16 40 percent average is probably what we would have. 17 SENATOR O'BRIEN: Thank you both for your 18 testimony. 19 SENATOR GRIFFO: Senator Martins? 20 SENATOR MARTINS: Thank you. 21 I'm familiar with the number of instances 22 where homeowners received or business owners 23 received checks from their insurance companies, 24 forwarded those checks to the bank to be endorsed, 25 only to wait, literally, weeks for those checks to 1 come back. 2 The regulations that require that the bank 3 perform its due diligence prior to endorsing those 4 checks, are there limits in those regulations, 5 time limits within which they do have to endorse 6 and return those checks, or is it at the 7 discretion of the bank? 8 JOHN GANG: I'm not sure if there's any 9 laws around that return, but, you know, certainly, 10 at Chase, we have a two-day standard. And that 11 includes, if we receive the check on Monday, those 12 funds, if, in fact, these are current loans, will 13 go out overnight on Tuesday, and be received by the 14 customer on Wednesday. 15 MICHAEL P. SMITH: And that would be, 16 I believe, I don't have it in front of me, within 17 the best practices of the Superintendent. 18 So I think, speaking for the industry, that 19 that would be viewed, generally, as an industry 20 practice. 21 SENATOR MARTINS: The -- at least that which 22 was relayed to me personally, and that which I have 23 heard anecdotally, is that these checks were 24 taken, in many instances, weeks to be endorsed and 25 returned. 1 And so I would ask that we look at -- into 2 that, to see, perhaps, irrespective of whether 3 Fannie and Freddie have relaxed their rules over 4 the course of the last week, in those first nearly 5 four months, there appears to have been a 6 practice, because it didn't happen just once or 7 twice. These are -- these are instances that have 8 been relayed on a number of occasions, where, 9 perhaps, the industry needs to reevaluate how 10 quickly it responds to those necessary precautions 11 that the industry takes to protect its collateral, 12 but at the same time, understanding that, given the 13 scope and breadth of this emergency, and the impact 14 to individuals, businesses, and communities, that 15 there is a responsibility on the part of the banks 16 to move as quickly, sir, as you've mentioned that 17 JPMorgan Chase does. 18 And I would perhaps say that it has been, 19 again, relayed to me that that has not been a 20 universal experience. 21 And to the extent that there aren't 22 regulations that cover it, certainly federal or 23 state, I would hope that the industry would take a 24 more proactive approach to address those concerns, 25 especially when we're dealing with instances such as 1 this. 2 MICHAEL P. SMITH: We -- we -- we support the 3 processing of those checks as swiftly as possible. 4 There are rules in clearing, that are 5 outside of the domain of the state of New York. 6 The Federal Reserve has clearing rules, but 7 they do not -- you know, how many checks are 8 affected, the extent of the delays, is something 9 that we certainly would take seriously, and look at, 10 and talk to the DFS about. 11 SENATOR MARTINS: I would also assume, that 12 if we're dealing with insurers, we're dealing with 13 the insurers that we deal with every day, that the 14 possibility of those checks not being covered is 15 something that you should take into consideration as 16 well. 17 And I understand the concerns you have with 18 regard to clearance, and checks clearing, but, I 19 mean, there's a minimized risk here, is there not, 20 on the part of the industry, and their ability to be 21 able to, not only receive, but then transmit funds 22 as well? 23 JOHN GANG: I would say that, at Chase, we 24 are not waiting for checks, so that if there's 25 that two-day process, we're not making a phone call 1 to Allstate or to Allstate's bank to see whether 2 that check is going to clear. 3 So, that's not part of our process at all. 4 So, you know, clearly, there are 5 exceptions, but our process, which is measured 6 every day, because we believe this is a real 7 emotional, they want that money back as quickly as 8 possible. And the fact that they don't have to, but 9 we're sending it out FedEx, eliminates a couple 10 days worth of postal time for each one of the 11 disbursements. 12 We don't use clearing as a delay tactic, and 13 it's not even in our process. 14 MICHAEL P. SMITH: I know, speaking for our 15 members and those servicers who are in our group, 16 including John, we would want to look at this claim 17 and see where that probably exists, because we 18 certainly would ascribe and support a quick 19 clearance of these checks when they're received. 20 SENATOR MARTINS: I appreciate that. 21 And just to follow up on a point the Chairman 22 had made earlier, with regard to inspections, I'll 23 give you a different scenario. 24 You know, you mentioned the scenario where 25 the insurance company cut the check. They've done 1 their inspection part, and they're cutting the 2 check. Now you go back and inspect it. 3 And it works sequentially. 4 But we do have instances where insurance 5 companies issue partial checks, and then there's 6 an inspection to make sure that the work's been 7 done. And then they issue another check, and the 8 bank then comes back. 9 And there are -- and in those instances where 10 there are multiple checks cut, and then multiple 11 inspections, there is an overlap between the 12 function of inspections by insurance companies and 13 banks. 14 And to that extent, I would hope that there 15 would be an opportunity to streamline that process, 16 since the bank's inspectors and the insurance 17 company inspectors, at least that's been my 18 experience, are different, and sometimes there's the 19 delay associated with that. 20 So, I do appreciate your testimony here 21 today. I thank you for your clarity. 22 And looking forward to, hopefully, coming to 23 terms with some of these issues that come up. 24 Thank you. 25 Thank you, Mr. Chairman. 1 SENATOR GRIFFO: Thank you, Senator Martin. 2 Any other members? 3 Again, I -- 4 Senator Sanders? 5 SENATOR SANDERS: Thank you, Mr. Chair. 6 Gentlemen, I'm sure that your best 7 practices are as you say, but my experiences are 8 closer to Senator Martins', where I have received 9 numerous complaints about people not getting their 10 checks in a timely fashion. 11 It is four months after the disaster, and, 12 certainly, we need to find better ways of doing 13 this in the future, since global warming, sadly, is 14 real, and we will be here again, in one sense. 15 Is there a -- I'm sure there's a desire, and 16 you spoke of a full-time group that's going to work. 17 I trust that among the things that you work 18 on, are, how do we make sure that this four-month 19 gap is never replicated in any future disaster? 20 MICHAEL P. SMITH: And I do think that, that 21 look, Senator, and I agree with that, that look has 22 to include all of the parties involved. 23 SENATOR SANDERS: Sure, sure. 24 MICHAEL P. SMITH: Including the federal -- 25 SENATOR SANDERS: And, of course, we want all 1 safeguards in there. Of course. 2 MICHAEL P. SMITH: But, no, I mean, because 3 the sector that we represent is just one sector in 4 this. 5 SENATOR SANDERS: I see what you're saying. 6 Thank you, sir. 7 Thank you, Mr. Chair. 8 MICHAEL P. SMITH: Thank you. 9 SENATOR GRIFFO: We just want to emphasize 10 again, too, that this was really, truly, a difficult 11 situation; a time of duress, distress, and 12 challenge. 13 And it's imperative that we learn many 14 lessons from this, and that we incorporate what we 15 learn, to ensure that we are prepared to deal with 16 this in a much better way than we have dealt with at 17 this point in time, regardless of all the 18 extenuating circumstances and other issues. 19 This is truly a difficult and tragic 20 experience for so many, that we really all need to 21 rise to the challenge and work cooperatively and 22 collectively, in the industry and the government, to 23 ensure that we do what we can to continue to be 24 there for the people who need these services. 25 MICHAEL P. SMITH: Agreed. 1 We stand with you and support that effort. 2 SENATOR GRIFFO: Thank you for your testimony 3 and for being here today. I appreciate that. 4 MICHAEL P. SMITH: Thank you very much. 5 SENATOR GRIFFO: I would like to now call 6 Mike Lanotte, who's the senior vice president and 7 general counsel for the Credit Union Association of 8 New York. 9 MICHAEL LANOTTE: Good afternoon. 10 SENATOR GRIFFO: Good afternoon, Mike. 11 MICHAEL LANOTTE: Thank you, Chairman Griffo. 12 I know that I'm the last one standing between 13 you guys and the end of the hearing. 14 It's -- a lot of times at the association, 15 I'm the last one between our members and the 16 reception, so I know how to keep it short. 17 So, there's obviously advantages and some 18 disadvantages in going near the end. 19 The disadvantage is, a lot of my written 20 testimony has already been provided, so I have to 21 wing it. 22 But, at the same time, hearing some of the 23 questions, perhaps what I can do is, lend some 24 specifics that might help answer some of the 25 questions that were raised by some of the Committee 1 members during the course of the hearing. 2 For those who don't know me, I am 3 Mike Lanotte. I'm senior vice president and general 4 counsel of the Credit Union Association. 5 We are the trade association for New York's 6 421 credit unions and their 4.7 million members. 7 Credit unions are not-for-profit 8 cooperatives, but they do provide a range of 9 financial services, including residential 10 mortgages. 11 What we can provide -- or I can provide in my 12 testimony is something a little unique, in that, our 13 association, back in 1987, recognized that there 14 might be an advantage to our credit unions having 15 a partner in providing mortgage services. 16 So we actually created a company in 17 partnership with them, entitled "CSC Mortgage 18 Corporation," which is part of our written 19 testimony. 20 That mortgage banker is licensed by 21 New York State, and provides a full range of 22 mortgage banking services. 23 So we were able, in conjunction, after we 24 heard about this hearing, to work with them, and I 25 can provide you some information as to how our 1 mortgage company has been working with 2 credit unions who were impacted -- who had 3 members impacted by "Superstorm Sandy." 4 We actually had three credit unions, 5 primarily, that we were doing mortgage servicing for 6 in the area. They are, Suffolk Federal Credit 7 Union, Oceanside Christopher Federal Credit Union, 8 and Nassau Financial Federal Credit Union. 9 So you can see we have a large range of 10 credit unions, different parts of the island, who 11 were impacted. 12 We also have many credit unions who, 13 unfortunately, just in the time frame, we were not 14 able to collect information from them on. 15 But, I have had some conversations with 16 them on, so the data I can share with you is a small 17 sample, but it is a representative sample of the 18 activities of our credit unions as it relates to 19 responding to what they were able to do for their 20 members who were homeowners impacted. 21 We have heard a lot today about some of the 22 challenges to the process and the delays that have 23 taken place. 24 I'm happy to say that, from our standpoint, 25 we really did not experience that, from our 1 standpoint in working with our members. 2 Credits unions have a unique position, in 3 that, they are very well aware of who their 4 members are personally. It gives them some 5 flexibility in working with them in times 6 especially of crisis like this. 7 Specifically, though, some statistics, as 8 it relates to the three credit unions I just 9 referenced: 10 We had 65 insurance-proceed checks come in 11 for some of those homeowners. They came in, I 12 think in the very beginning, was the very end of 13 November. 14 56 of those have been fully paid out already. 15 The total amount was $1,750,000. And to date, we 16 have released almost 1.5 million of those. 17 So we have nine checks remaining, with 18 300,000. 19 At -- so some of the other questions that 20 were the raised is, you know: 21 How do you speed this up? 22 Or, what are the documentation that might be 23 required? 24 In our case, quite simply, in one of the 25 cases, the 65,000 of the 300,000 is being held 1 simply because, in working with the homeowner, they 2 decided they wanted to pay off the loan. 3 So those proceeds will be going to pay off 4 the loan balance. 5 In the other eight cases, we did need some 6 extra documentation. 7 But in our case, when we're asking for 8 documentation, we're simply looking for something 9 like a receipt for work done. 10 If you don't have the work done yet, and you 11 need to have something done, it's a little difficult 12 to get the receipt. 13 We have an internal document, something 14 simply called a "Certificate of Intent to Repair," 15 which we trust our members will, when they sign 16 off on that, that they are going to have the work 17 done, and then that allows us to create a stream of 18 getting some of those dollars out to them a little 19 bit more quickly. 20 We also, because we know our members and can 21 be flexible, have had opportunities, for example, 22 when we had a homeowner say, My contractor needs to 23 go buy tiles, and it's going to cost, like, $7,000 24 to get all the stuff to get the tile work done. 25 We didn't, obviously, have a receipt, but we 1 were able to release the funds immediately and get 2 the work starting to move. 3 Finally, Senator Griffo, you had asked about 4 excuse me, about volunteers. 5 In our case, we have had homeowners who 6 come back to us and said, either they've done the 7 work themselves, or they've had people volunteer 8 their time to help them to get this done, so, 9 "What should we do?" 10 In those cases, we do feel we need to make 11 sure that we are maintaining certain standards. Our 12 mortgage company does sell their loans to Fannie and 13 Freddie Mac, so we are trying to make sure we're 14 compliant with those procedures, obviously. 15 And what we can do in that case, is we will 16 have an inspector come out, but, we have 17 inspections scheduled the same day, and work with 18 inspectors who will go out and have the work 19 completed within two days. 20 So that prevents delays from occurring. 21 One other thing I just wanted to mention is 22 that, as it relates to the best practices, which 23 was talked about a little bit already, we're happy 24 to say that our mortgage company, and the credit 25 unions that we've talked to, are complying with, 1 virtually, all of those already today. It's part of 2 their standard operating procedures. 3 In the case of our mortgage company, the only 4 one that they're not complying with, ironically, is 5 the first one, which asked for them to have the 6 information posted to their website, the forms and 7 procedures. 8 It was kind of a "DUH" moment for us. 9 It was, like, Oh, we should -- obviously, we 10 need to do that. 11 So that's already being taken care of. 12 So, we have a little bit of a unique 13 situation in credit-union land, where we know our 14 members a little bit more closely, and be a little 15 bit more flexible in working with them. 16 But because of that, we've been able to help 17 them more quickly rebuild their homes and, 18 hopefully, get their lives back in order a little 19 bit more quickly. 20 So, I appreciate you giving us the time to 21 testify. 22 SENATOR GRIFFO: Thank you, Mike. You were 23 very succinct, and we appreciate that too. 24 I just have a quick question to you. 25 When we look at how the events were 1 handled, do you agree with that we can go a better 2 job in trying to provide more consumer outreach and 3 notice, so if that information were provided, like, 4 a notification for a procedure for expeditious funds 5 release, people had more information and knowledge 6 of how it works, and what they can do, that that 7 would help? 8 And is this something that we can put in 9 place, moving forward, now that we know some of the 10 pitfalls and problems that we've experienced? 11 MICHAEL LANOTTE: I would agree 12 wholeheartedly. 13 I know our credit unions would agree as 14 well. 15 Something very near and dear to them is 16 ensuring that their members are well aware of how 17 to deal with their finances, their debt. 18 Obviously, owning a home and having a 19 mortgage is important. You want to make sure you're 20 aware of everything you need to do, regardless of 21 whether things are going well or there's a crisis. 22 Credit unions are always out in front on 23 education, whether it's financial education or just 24 notification. 25 So, I know that that would be something that 1 they would definitely agree with. 2 SENATOR GRIFFO: Thanks. 3 Senator Farley? 4 SENATOR FARLEY: Mike, did you have a -- very 5 many credit unions impacted by this storm on the 6 island? 7 MICHAEL LANOTTE: Yes, Senator Farley, most 8 of our credit unions on the island. And there are 9 portions of those who serve members in Queens, who 10 did have members impacted. 11 Unfortunately, again, I wasn't able to get 12 the data, significantly, from those credit unions, 13 but they have been working diligently with their 14 members. 15 And just like our mortgage company, in those 16 cases, have been able to disburse most of the funds, 17 if not all the funds, for those members who have 18 been impacted. 19 But I'd be happy to get the Committee 20 detailed information data. 21 SENATOR FARLEY: I learned a lot from my 22 colleagues that were -- that had personal impacts 23 as a result of this. 24 Needless to say, Kathy and I, we weren't too 25 much affected by the storm. 1 But you were. 2 I don't think Utica got -- 3 Rome. He's a Rome guy. 4 -- got impacted that much. 5 But, appreciate your testimony. 6 And, actually, I've learned an awful lot from 7 this hearing. 8 And I -- I thank you for your testimony, and 9 all of the previous members. 10 MICHAEL LANOTTE: Thank you. 11 SENATOR GRIFFO: It was very well said, 12 Senator Farley. 13 We always learn a lot from Senator Farley, 14 and -- 15 But, thank you, Michael. Appreciate you 16 being here today. 17 And we will continue to all work together, 18 because it is so important to all of the people that 19 we serve in so many different ways. 20 So, thank you for your presence. 21 MICHAEL LANOTTE: Thank you very much. 22 SENATOR GRIFFO: And with that, I want to 23 thank Senator O'Brien, the ranking member of the 24 Banks Committee; 25 And, the Vice Chair, and longtime mentor of 1 all of us, Senator Farley, for his presence; 2 Senator Marchione, and all the members that 3 were here today, I appreciate their attendance, and 4 their input, and their involvement in this hearing, 5 which I think is very important. 6 We'll continue to monitor, and to 7 communicate, relative to all of the issues that 8 were discussed and addressed today. 9 And with that, I will now call this hearing 10 of the Senate -- this public hearing of the 11 Standing Senate Committee on Banks to a close. 12 Hearing is closed. 13 SENATOR FARLEY: Thank you, Mr. Chairman. 14 15 (Whereupon, at approximately 3:11 p.m., 16 the public hearing held before the New York State 17 Senate Standing Committee on Banks concluded, and 18 adjourned.) 19 20 21 22 23 24 25