JP Morgan Chase 2009 Annual Report Download - page 211

JPMorgan Chase & Co./2009 Annual Report 209
The Firm retained a subordinated interest in accrued interest and
fees on the securitized receivables totaling $3.2 billion and $3.0
billion as of December 31, 2009 and 2008, respectively, which is
reported at fair value in other assets.
The Firm retained subordinated securities in its credit card securiti-
zation trusts with aggregate fair values of $6.6 billion and $2.3
billion at December 31, 2009 and 2008, respectively, and senior
securities with aggregate fair values of $7.2 billion and $3.5 billion
at December 31, 2009 and 2008, respectively. Of the securities
retained, $13.8 billion and $5.4 billion were classified as AFS
securities at December 31, 2009 and 2008, respectively. The senior
AFS securities were used by the Firm as collateral for a secured
financing transaction. The retained subordinated interests that were
acquired in the Washington Mutual transaction and classified as
trading assets had a carrying value of $389 million on December
31, 2008. These retained subordinated interests were subsequently
repaid or valued at zero before the Firm consolidated the WMM
Trust in the second quarter of 2009, as discussed above.
The Firm also maintains escrow accounts up to predetermined limits
for some credit card securitizations to cover deficiencies in cash flows
owed to investors. The amounts available in such escrow accounts
related to credit cards are recorded in other assets and amounted to
$1.0 billion and $74 million as of December 31, 2009 and 2008,
respectively. The increase in the balance of these escrow accounts
primarily relates to the Trust actions described above that the Firm
took on May 12, 2009. JPMorgan Chase has also recorded $854
million representing receivables that have been transferred to the
Trust and designated as “discount receivables.” All of these residual
interests are reported at fair value in other assets.
Mortgage Securitizations
The Firm securitizes originated and purchased residential mort-
gages and originated commercial mortgages.
RFS securitizes residential mortgage loans that it originates and
purchases and it generally retains servicing for all of its originated
and purchased residential mortgage loans and certain commercial
mortgage loans. Additionally, RFS may retain servicing for certain
mortgage loans purchased by IB. As servicer, the Firm receives
servicing fees based on the securitized loan balance plus ancillary
fees. In a limited number of securitizations, RFS may retain an
interest in addition to servicing rights. The amount of interest
retained related to these securitizations totaled $537 million and
$939 million at December 31, 2009 and 2008, respectively. These
retained interests are accounted for as trading or AFS securities (if
represented by a security certificate) or other assets (if not repre-
sented by a security certificate).
IB securitizes residential mortgage loans (including those that it
purchased and certain mortgage loans originated by RFS), and
commercial mortgage loans that it originated. Residential loans
securitized by IB are often serviced by RFS. Upon securitization, IB
may engage in underwriting and trading activities of the securities
issued by the securitization trust. IB may retain unsold senior and/or
subordinated interests (including residual interests) in both residen-
tial and commercial mortgage securitizations at the time of securiti-
zation. These retained interests are accounted for at fair value and
classified as trading assets. The amount of residual interests re-
tained was $24 million and $155 million at December 31, 2009
and 2008, respectively. Additionally, IB retained $2.3 billion and
$2.8 billion of senior and subordinated interests as of December
31, 2009 and 2008, respectively.
In addition to the amounts reported in the securitization activity
tables below, the Firm sold residential mortgage loans totaling
$147.9 billion, $122.0 billion and $81.8 billion during the years
ended December 31, 2009, 2008 and 2007, respectively. The
majority of these loan sales were for securitization by Govern-
ment National Mortgage Association (“GNMA”), Federal Na-
tional Mortgage Association (“Fannie Mae”) and Federal Home
Loan Mortgage Corporation (“Freddie Mac”). The Firm retains
the right to service these loans and they are serviced in accor-
dance with the agency’s servicing guidelines and standards.
These sales resulted in pretax gains of $92 million, $32 million
and $47 million, respectively.
For a limited number of loan sales, the Firm is obligated to share up
to 100% of the credit risk associated with the sold loans with the
purchaser. See Note 31 on page 241 of this Annual Report for
additional information on loans sold with recourse and other securi-
tization related indemnifications.
Other Securitizations
The Firm also securitizes automobile and student loans originated
by RFS and purchased consumer loans (including automobile and
student loans). The Firm retains servicing responsibilities for all
originated and certain purchased student and automobile loans. It
may also hold a retained interest in these securitizations; such
residual interests are classified as other assets. At December 31,
2009 and 2008, the Firm held $9 million and $37 million, respec-
tively, of retained interests in securitized automobile loan securitiza-
tions and $49 million and $52 million, respectively, of residual
interests in securitized student loans.