JP Morgan Chase 2014 Annual Report Download - page 266

Notes to consolidated financial statements
264 JPMorgan Chase & Co./2014 Annual Report
Residential mortgage
The Firm securitizes residential mortgage loans originated
by CCB, as well as residential mortgage loans purchased
from third parties by either CCB or CIB. CCB generally
retains servicing for all residential mortgage loans
originated or purchased by CCB, and for certain mortgage
loans purchased by CIB. For securitizations serviced by CCB,
the Firm has the power to direct the significant activities of
the VIE because it is responsible for decisions related to
loan modifications and workouts. CCB may also retain an
interest upon securitization.
In addition, CIB engages in underwriting and trading
activities involving securities issued by Firm-sponsored
securitization trusts. As a result, CIB at times retains senior
and/or subordinated interests (including residual interests)
in residential mortgage securitizations upon securitization,
and/or reacquires positions in the secondary market in the
normal course of business. In certain instances, as a result
of the positions retained or reacquired by CIB or held by
CCB, when considered together with the servicing
arrangements entered into by CCB, the Firm is deemed to
be the primary beneficiary of certain securitization trusts.
See the table on page 268 of this Note for more information
on consolidated residential mortgage securitizations.
The Firm does not consolidate a residential mortgage
securitization (Firm-sponsored or third-party-sponsored)
when it is not the servicer (and therefore does not have the
power to direct the most significant activities of the trust)
or does not hold a beneficial interest in the trust that could
potentially be significant to the trust. At December 31,
2014 and 2013, the Firm did not consolidate the assets of
certain Firm-sponsored residential mortgage securitization
VIEs, in which the Firm had continuing involvement,
primarily due to the fact that the Firm did not hold an
interest in these trusts that could potentially be significant
to the trusts. See the table on page 268 of this Note for
more information on the consolidated residential mortgage
securitizations, and the table on the previous page of this
Note for further information on interests held in
nonconsolidated residential mortgage securitizations.
Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans,
and engages in underwriting and trading activities involving
the securities issued by securitization trusts. CIB may retain
unsold senior and/or subordinated interests in commercial
mortgage securitizations at the time of securitization but,
generally, the Firm does not service commercial loan
securitizations. For commercial mortgage securitizations
the power to direct the significant activities of the VIE
generally is held by the servicer or investors in a specified
class of securities (“controlling class”). See the table on
page 268 of this Note for more information on the
consolidated commercial mortgage securitizations,
and the table on the previous page of this Note for further
information on interests held in nonconsolidated
securitizations.
The Firm retains servicing responsibilities for certain
student loan securitizations. The Firm has the power to
direct the activities of these VIEs through these servicing
responsibilities. See the table on page 268 of this Note for
more information on the consolidated student loan
securitizations, and the table on the previous page of this
Note for further information on interests held in
nonconsolidated securitizations.
Re-securitizations
The Firm engages in certain re-securitization transactions in
which debt securities are transferred to a VIE in exchange
for new beneficial interests. These transfers occur in
connection with both agency (Fannie Mae, Freddie Mac and
Ginnie Mae) and nonagency (private-label) sponsored VIEs,
which may be backed by either residential or commercial
mortgages. The Firm’s consolidation analysis is largely
dependent on the Firm’s role and interest in the re-
securitization trusts. During the years ended December 31,
2014, 2013 and 2012, the Firm transferred $22.7 billion,
$25.3 billion and $10.0 billion, respectively, of securities to
agency VIEs, and $1.1 billion, $55 million and $286
million, respectively, of securities to private-label VIEs.
Most re-securitizations with which the Firm is involved are
client-driven transactions in which a specific client or group
of clients is seeking a specific return or risk profile. For
these transactions, the Firm has concluded that the
decision-making power of the entity is shared between the
Firm and its clients, considering the joint effort and
decisions in establishing the re-securitization trust and its
assets, as well as the significant economic interest the client
holds in the re-securitization trust; therefore the Firm does
not consolidate the re-securitization VIE.
In more limited circumstances, the Firm creates a re-
securitization trust independently and not in conjunction
with specific clients. In these circumstances, the Firm is
deemed to have the unilateral ability to direct the most
significant activities of the re-securitization trust because of
the decisions made during the establishment and design of
the trust; therefore, the Firm consolidates the re-
securitization VIE if the Firm holds an interest that could
potentially be significant.
Additionally, the Firm may invest in beneficial interests of
third-party securitizations and generally purchases these
interests in the secondary market. In these circumstances,
the Firm does not have the unilateral ability to direct the
most significant activities of the re-securitization trust,
either because it was not involved in the initial design of the
trust, or the Firm is involved with an independent third-
party sponsor and demonstrates shared power over the
creation of the trust; therefore, the Firm does not
consolidate the re-securitization VIE.
As of December 31, 2014 and 2013, the Firm did not
consolidate any agency re-securitizations. As of
December 31, 2014 and 2013, the Firm consolidated
assets of $77 million and $86 million, respectively, and
liabilities of $21 million and $23 million, respectively, of