JP Morgan Chase 2009 Annual Report Download - page 73
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JPMorgan Chase & Co./2009 Annual Report
71
Mortgage origination channels comprise the following:
Retail – Borrowers who are buying or refinancing a home
through direct contact with a mortgage banker employed by the
Firm using a branch office, the Internet or by phone. Borrowers
are frequently referred to a mortgage banker by a banker in a
Chase branch, real estate brokers, home builders or other third
parties.
Wholesale – A third-party mortgage broker refers loan applica-
tions to a mortgage banker at the Firm. Brokers are independent
loan originators that specialize in finding and counseling borrow-
ers but do not provide funding for loans. The Firm exited the
broker channel during 2008.
Correspondent – Banks, thrifts, other mortgage banks and
other financial institutions that sell closed loans to the Firm.
Correspondent negotiated transactions (“CNTs”) – These
transactions occur when mid- to large-sized mortgage lenders,
banks and bank-owned mortgage companies sell servicing to the
Firm on an as-originated basis, and exclude purchased bulk servic-
ing transactions. These transactions supplement traditional pro-
duction channels and provide growth opportunities in the servicing
portfolio in stable and rising-rate periods.
Production revenue – Includes net gains or losses on origina-
tions and sales of prime and subprime mortgage loans, other
production-related fees and losses related to the repurchase of
previously sold loans.
Net mortgage servicing revenue includes the following
components:
(a) Operating revenue comprises:
– all gross income earned from servicing third-party mortgage
loans including stated service fees, excess service fees, late fees
and other ancillary fees.
– modeled servicing portfolio runoff (or time decay).
(b) Risk management comprises:
– changes in MSR asset fair value due to market-based inputs
such as interest rates and volatility, as well as updates to
assumptions used in the MSR valuation model.
– derivative valuation adjustments and other, which represents
changes in the fair value of derivative instruments used to offset
the impact of changes in the market-based inputs to the
MSR valuation model.