JP Morgan Chase 2014 Annual Report Download - page 293

JPMorgan Chase & Co./2014 Annual Report 291
therefore, are not recorded on the Consolidated balance
sheets until settlement date. The unsettled reverse
repurchase agreements and securities borrowing
agreements predominantly consist of agreements with
regular-way settlement periods.
Loan sales- and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm’s mortgage loan sale and
securitization activities with the GSEs, as described in Note
16, the Firm has made representations and warranties that
the loans sold meet certain requirements. The Firm has
been, and may be, required to repurchase loans and/or
indemnify the GSEs (e.g., with “make-whole” payments to
reimburse the GSEs for their realized losses on liquidated
loans). To the extent that repurchase demands that are
received relate to loans that the Firm purchased from third
parties that remain viable, the Firm typically will have the
right to seek a recovery of related repurchase losses from
the third party. Generally, the maximum amount of future
payments the Firm would be required to make for breaches
of these representations and warranties would be equal to
the unpaid principal balance of such loans that are deemed
to have defects that were sold to purchasers (including
securitization-related SPEs) plus, in certain circumstances,
accrued interest on such loans and certain expense.
The following table summarizes the change in the mortgage
repurchase liability for each of the periods presented.
Summary of changes in mortgage repurchase liability(a)
Year ended December 31,
(in millions) 2014 2013 2012
Repurchase liability at beginning of
period $ 681 $ 2,811 $ 3,557
Net realized gains/(losses)(b) 53 (1,561) (1,158)
Reclassification to litigation reserve —(179) —
(Benefit)/provision for repurchase(c) (459) (390) 412
Repurchase liability at end of
period $ 275 $ 681 $ 2,811
(a) On October 25, 2013, the Firm announced that it had reached a $1.1
billion agreement with the FHFA to resolve, other than certain limited
types of exposures, outstanding and future mortgage repurchase
demands associated with loans sold to the GSEs from 2000 to 2008.
(b) Presented net of third-party recoveries and included principal losses
and accrued interest on repurchased loans, “make-whole” settlements,
settlements with claimants, and certain related expense. Make-whole
settlements were $11 million, $414 million and $524 million, for the
years ended December 31, 2014, 2013 and 2012, respectively.
(c) Included a provision related to new loan sales of $4 million, $20
million and $112 million, for the years ended December 31, 2014,
2013 and 2012, respectively.
Private label securitizations
The liability related to repurchase demands associated with
private label securitizations is separately evaluated by the
Firm in establishing its litigation reserves.
On November 15, 2013, the Firm announced that it had
reached a $4.5 billion agreement with 21 major
institutional investors to make a binding offer to the
trustees of 330 residential mortgage-backed securities
trusts issued by J.P.Morgan, Chase, and Bear Stearns
(“RMBS Trust Settlement”) to resolve all representation and
warranty claims, as well as all servicing claims, on all trusts
issued by J.P. Morgan, Chase, and Bear Stearns between
2005 and 2008. The seven trustees (or separate and
successor trustees) for this group of 330 trusts have
accepted the RMBS Trust Settlement for 319 trusts in whole
or in part and excluded from the settlement 16 trusts in
whole or in part. The trustees’ acceptance is subject to a
judicial approval proceeding initiated by the trustees, which
is pending in New York state court.
In addition, from 2005 to 2008, Washington Mutual made
certain loan level representations and warranties in
connection with approximately $165 billion of residential
mortgage loans that were originally sold or deposited into
private-label securitizations by Washington Mutual. Of the
$165 billion, approximately $78 billion has been repaid. In
addition, approximately $49 billion of the principal amount
of such loans has liquidated with an average loss severity of
59%. Accordingly, the remaining outstanding principal
balance of these loans as of December 31, 2014, was
approximately $38 billion, of which $8 billion was 60 days
or more past due. The Firm believes that any repurchase
obligations related to these loans remain with the FDIC
receivership.
For additional information regarding litigation, see Note 31.
Loans sold with recourse
The Firm provides servicing for mortgages and certain
commercial lending products on both a recourse and
nonrecourse basis. In nonrecourse servicing, the principal
credit risk to the Firm is the cost of temporary servicing
advances of funds (i.e., normal servicing advances). In
recourse servicing, the servicer agrees to share credit risk
with the owner of the mortgage loans, such as Fannie Mae
or Freddie Mac or a private investor, insurer or guarantor.
Losses on recourse servicing predominantly occur when
foreclosure sales proceeds of the property underlying a
defaulted loan are less than the sum of the outstanding
principal balance, plus accrued interest on the loan and the
cost of holding and disposing of the underlying property.
The Firm’s securitizations are predominantly nonrecourse,
thereby effectively transferring the risk of future credit
losses to the purchaser of the mortgage-backed securities
issued by the trust. At December 31, 2014 and 2013, the
unpaid principal balance of loans sold with recourse totaled
$6.1 billion and $7.7 billion, respectively. The carrying
value of the related liability that the Firm has recorded,
which is representative of the Firm’s view of the likelihood it