JP Morgan Chase 2008 Annual Report Download - page 64

Management’s discussion and analysis
62 JPMorgan Chase & Co./ 2008 Annual Report
Consumer Lending (continued)
(in billions, except ratios and where
otherwise noted) 2008 2007 2006
Origination volume
Mortgage origination volume
by channel
Retail $ 41.1 $ 45.5 $ 40.5
Wholesale 29.4 42.7 32.8
Correspondent 55.5 27.9 13.3
CNT (negotiated transactions) 43.0 43.3 32.6
Total mortgage origination
volume 169.0 159.4 119.2
Home equity 16.3 48.3 51.9
Student loans 6.9 7.0 8.1
Auto 19.4 21.3 19.3
Avg. mortgage loans held-for-sale
and loans at fair value(a) 14.6 18.8 12.9
Average assets 278.1 216.1 211.1
Third-party mortgage loans serviced
(ending) 1,172.6 614.7 526.7
MSR net carrying value (ending) 9.3 8.6 7.5
Supplemental mortgage fees and
related income details (in millions)
Production revenue $ 898 $ 880 $ 304
Net mortgage servicing revenue:
Loan servicing revenue 3,258 2,334 2,139
Changes in MSR asset fair value:
Due to inputs or assumptions
in model (6,849) (516) 165
Other changes in fair value (2,052) (1,531) (1,440)
Total changes in MSR asset
fair value (8,901) (2,047) (1,275)
Derivative valuation adjustments
and other 8,366 927 (550)
Total net mortgage servicing
revenue 2,723 1,214 314
Mortgage fees and related income 3,621 2,094 618
(a) Included $14.2 billion and $11.9 billion of prime mortgage loans at fair value for
the years ended December 31, 2008 and 2007, respectively.
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 real estate bro-
kers, 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.
Correspondent – Banks, thrifts, other mortgage banks and
other financial institutions that sell closed loans to the Firm.
Correspondent negotiated transactions (“CNT”) – Mid-to
large-sized mortgage lenders, banks and bank-owned companies
that sell loans or servicing to the Firm on an as-originated basis,
excluding bulk servicing transactions.
Production revenue – Includes net gains or losses on origina-
tions and sales of prime and subprime mortgage loans and other
production-related fees.
Net mortgage servicing revenue components: Servicing
revenue – Represents all gross income earned from servicing
third-party mortgage loans, including stated service fees, excess
service fees, late fees and other ancillary fees.
Changes in MSR asset fair value due to inputs or
assumptions in model – Represents MSR asset fair value
adjustments due to changes in market-based inputs, such as
interest rates and volatility, as well as updates to valuation
assumptions used in the valuation model.
Changes in MSR asset fair value due to other changes –
Includes changes in the MSR value due to modeled servicing
portfolio runoff (or time decay).
Derivative valuation adjustments and other – Changes in
the fair value of derivative instruments used to offset the impact
of changes in market-based inputs to the MSR valuation model.
MSR risk management results – Includes changes in MSR
asset fair value due to inputs or assumptions and derivative valu-
ation adjustments and other.