JP Morgan Chase 2014 Annual Report Download - page 88

Management’s discussion and analysis
86 JPMorgan Chase & Co./2014 Annual Report
2013 compared with 2012
Mortgage Production pretax income was $851 million, a
decrease of $2.7 billion from the prior year, reflecting lower
margins, lower volumes and higher legal expense, partially
offset by a benefit in repurchase losses. Production-related
revenue, excluding repurchase losses, was $3.6 billion, a
decrease of $3.0 billion, or 45%, from the prior year,
largely reflecting lower margins and lower volumes from
rising rates. Production expense was $3.1 billion, an
increase of $341 million, or 12%, from the prior year, due
to higher non-MBS related legal expense and higher
compensation-related expense. Repurchase losses for the
current year reflected a benefit of $331 million, compared
with repurchase losses of $272 million in the prior year. The
current year reflected a reduction in the repurchase liability
largely as a result of the settlement with the GSEs.
Mortgage Servicing pretax loss was $338 million,
compared with a pretax loss of $1.1 billion in the prior year,
driven by lower expense, partially offset by a MSR risk
management loss. Mortgage net servicing-related revenue
was $2.9 billion, a decrease of $78 million. MSR risk
management was a loss of $268 million, compared with
income of $616 million in the prior year, driven by the net
impact of various changes in model inputs and assumptions.
See Note 17 for further information regarding changes in
value of the MSR asset and related hedges. Servicing
expense was $3.0 billion, a decrease of $1.8 billion, or
37%, from the prior year, reflecting lower costs associated
with the Independent Foreclosure Review and lower
servicing headcount.
Real Estate Portfolios pretax income was $4.8 billion, up
$1.7 billion from the prior year, or 54%, due to a higher
benefit from the provision for credit losses, partially offset
by lower net revenue. Net revenue was $3.7 billion, a
decrease of $602 million, or 14%, from the prior year. This
decrease was due to lower net interest income, resulting
from lower loan balances due to net portfolio runoff, and
lower noninterest revenue due to higher loan retention. The
provision for credit losses was a benefit of $2.7 billion,
compared with a benefit of $509 million in the prior year.
The current-year provision reflected a $3.8 billion reduction
in the allowance for loan losses, $2.3 billion from the non
credit-impaired allowance and $1.5 billion from the
purchased credit-impaired allowance, reflecting continued
improvement in home prices and delinquencies. The prior-
year provision included a $3.9 billion reduction in the
allowance for loan losses from the non credit-impaired
allowance. Net charge-offs were $1.1 billion, compared with
$3.3 billion in the prior year. Prior-year total net charge-
offs included $744 million of incremental charge-offs
reported in accordance with regulatory guidance on certain
loans discharged under Chapter 7 bankruptcy. Noninterest
expense was $1.6 billion, a decrease of $100 million, or
6%, compared with the prior year, driven by lower
foreclosed asset expense due to lower foreclosure
inventory, largely offset by higher FDIC-related expense.
Mortgage Production and Mortgage
Servicing
Selected metrics
As of or for the year ended
December 31,
(in millions, except ratios) 2014 2013 2012
Selected balance sheet data
(Period-end)
Trading assets - loans(a) $ 8,423 $ 6,832 $18,801
Loans:
Prime mortgage, including
option ARMs(b) $13,557 $15,136 $17,290
Loans held-for-sale 314 614 —
Selected balance sheet data
(average)
Trading assets - loans(a) 8,040 15,603 17,573
Loans:
Prime mortgage, including
option ARMs(b) 14,993 16,495 17,335
Loans held-for-sale 394 114 —
Average assets 42,456 57,131 59,837
Repurchase liability (period-
end) 249 651 2,530
Credit data and quality
statistics
Net charge-offs:
Prime mortgage, including
option ARMs 612 19
Net charge-off rate:
Prime mortgage, including
option ARMs 0.04% 0.07% 0.11%
30+ day delinquency rate(c) 2.06 2.75 3.05
Nonperforming assets(d)(e) $ 389 $ 519 $ 599
(a) Predominantly consists of prime mortgages originated with the intent
to sell that are accounted for at fair value.
(b) Predominantly represents prime mortgage loans repurchased from
Government National Mortgage Association (“Ginnie Mae”) pools,
which are insured by U.S. government agencies.
(c) At December 31, 2014, 2013 and 2012, excluded mortgage loans
insured by U.S. government agencies of $9.7 billion, $9.6 billion and
$11.8 billion respectively, that are 30 or more days past due. These
amounts have been excluded based upon the government guarantee.
For further discussion, see Note 14 which summarizes loan
delinquency information.
(d) At December 31, 2014, 2013 and 2012, nonperforming assets
excluded: (1) mortgage loans insured by U.S. government agencies of
$7.8 billion, $8.4 billion and $10.6 billion respectively, that are 90 or
more days past due; and (2) REO insured by U.S. government
agencies of $462 million, $2.0 billion and $1.6 billion, respectively.
These amounts have been excluded based upon the government
guarantee.
(e) Prior periods were revised to conform with the current presentation.