JP Morgan Chase 2010 Annual Report Download - page 230

Notes to consolidated financial statements
230 JPMorgan Chase & Co./2010 Annual Report
Residential real estate impaired loans and loan
modifications – excluding PCI loans
The Firm is participating in the U.S. Treasury’s Making Home
Affordable (“MHA”) programs and is continuing to expand its
other loss-mitigation efforts for financially distressed borrowers
who do not qualify for the MHA programs.
MHA, as well as the Firm’s other loss-mitigation programs, gen-
erally provide various concessions to financially troubled borrow-
ers including, but not limited to, interest rate reductions, term or
payment extensions and deferral of principal payments that
would otherwise have been required under the terms of the
original agreement. Principal forgiveness has been limited to a
specific modification program for option ARMs.
Generally, borrowers must make at least three payments under the
revised contractual terms during a trial modification and be success-
fully re-underwritten with income verification before a mortgage or
home equity loan can be permanently modified. When the Firm
modifies home equity lines of credit in troubled debt restructurings,
future lending commitments related to the modified loans are
canceled as part of the terms of the modification.
Modifications of residential real estate loans other than PCI loans
are generally accounted for and reported as TDRs. For further
discussion of the accounting for loan modifications and TDRs, see
Loan modifications on pages 221–222 of this Note.
The tables below set forth information about the Firm’s residential real estate impaired loans, excluding PCI. These loans are considered to be
impaired as they have been modified in a TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 15 on
pages 239–243 of this Annual Report.
Home equity
Mortgages
December 31, Senior lien Junior lien
Prime
, including option
ARMs Subprime
Total residential real
estate (excluding PCI)
(in millions)
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
Impaired loans
(a)(b)
With an allowance
$
211
$ 167
$
258
$ 221
$
1,525
$ 552
$
2,563
$
1,952
$
4,557
$ 2,892
Without an allowance
(
c
)
15 1 25 1 559 90 188 46 787 138
Total impaired loans
(
d
)
$ 226 $ 168 $ 283 $ 222 $ 2,084 $ 642 $ 2,751 $ 1,998 $ 5,344 $ 3,030
Allowance for loan losses
related to impaired loans $ 77 $ 73 $ 82 $ 100 $ 97 $ 70 $ 555 $ 494 $ 811 $ 737
Unpaid principal balance of
impaired loans(e) 265 178 402 273
2,751 783 3,777 2,303 7,195 3,537
Impaired loans on nonaccrual
status 38 30 63 43
534 249 632 598 1,267 920
(a) Represents loans modified in a TDR. These modifications generally provided interest rate concessions to the borrower or deferral of principal repayments.
(b) There are no additional commitments to lend to borrowers whose loans have been modified in TDRs as of December 31, 2010 and 2009.
(c) When discounted cash flows or collateral value equals or exceeds the recorded investment in the loan, then the loan does not require an allowance. This typically occurs when the
impaired loans have been partially charged-off and/or there have been interest payments received and applied to the loan balance.
(d) At December 31, 2010 and 2009, $3.0 billion and $296 million, respectively, of loans modified subsequent to repurchase from Ginnie Mae were excluded from loans accounted for
as TDRs. When such loans perform subsequent to modification they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to
foreclosure. Substantially all amounts due under the terms of these loans continue to be insured and, where applicable, reimbursement of insured amounts is proceeding normally.
(e) Represents the contractual amount of principal owed at December 31, 2010 and 2009. The unpaid principal balance differs from the impaired loan balances due to various factors,
including charge-offs; interest payments received and applied to the principal balance; net deferred loan fees or costs; and discounts or premiums on purchased loans.
The following table presents average impaired loans and the related interest income reported by the Firm.
For the year ended December 31, Impaired loans (average) Interest income on impaired loans(a)
Interest income on impaired
loans on a cash basis(a)
(in millions)
2010
2009
2008
2010
2009
2008
2010
2009
2008
Home equity
Senior lien
$ 207 $ 142 $ 39 $ 15 $ 7 $ 2 $ 1 $ 1 $ —
Junior lien
266 187 39 10 9 3 1 1 —
Mortgages
Prime
, including option ARMs
1,530 496 41 70 34 2 14 8 —
Subprime
2,539 1,948 690 121 98 47 19 6 2
Total residential real estate
(excluding PCI)
$4,542 $ 2,773 $ 809 $ 216 $ 148 $ 54 $ 35 $ 16 $ 2
(a) Generally, interest income on loans modified in a TDR is recognized on a cash basis until such time as the borrower has made a minimum of six payments under the new terms. As
of December 31, 2010 and 2009, loans of $580 million and $256 million, respectively, are TDRs for which the borrowers have not yet made six payments under their modified
terms.