JP Morgan Chase 2010 Annual Report Download - page 257

JPMorgan Chase & Co./2010 Annual Report 257
Loans sold to U.S. government agencies and other third-
party sponsored securitization entities
In addition to the amounts reported in the securitization activity
tables above, the Firm, in the normal course of business, sells
originated and purchased mortgage loans, predominantly to U.S.
government agencies. These loans are sold primarily for the pur-
pose of securitization by U.S. government agencies, which also
provide credit enhancement of the loans through certain guarantee
provisions. In connection with these loan sales, the Firm makes
certain representations and warranties. For additional information
about the Firm’s loan sale- and securitization-related indemnifica-
tions, see Note 30 on pages 275–280 of this Annual Report.
The Firm generally retains the right to service the mortgage loans in
accordance with the respective servicing guidelines and standards,
and records a servicing asset at the time of sale.
The following table summarizes these loan sale activities.
Year ended December 31,
(in millions)
2010
2009 2008
Carrying value of loans
sold(a)(b) $ 156,615 $ 154,571 $ 132,111
Proceeds received from loan
sales as cash 3,887 1,702 7,112
Proceed
s received from loan sales
as securities(c) 149,786 149,343 121,947
Total proceeds received
from loan sales $ 153,673 $ 151,045 $ 129,059
Gains on loan sales
212
89 30
(a) Predominantly to U.S. government agencies.
(b) MSRs were excluded from the above table. See Note 17 on pages 260–263 of
this Annual Report for further information on originated MSRs.
(c) Predominantly includes securities from U.S. government agencies that are
generally sold shortly after receipt.
The Firm has the option to repurchase certain loans sold to U.S.
government agencies (predominantly loans securitized in Ginnie
Mae pools) if they reach certain delinquency triggers. Once the
delinquency trigger has been met, regardless of whether the repur-
chase option has been exercised, the Firm recognizes the loan on
the Consolidated Balance Sheet. The Firm also recognizes an offset-
ting liability in accounts payable and other liabilities for any loans
subject to the repurchase option, but for which the option to repur-
chase has not been exercised. As of December 31, 2010 and 2009,
loans repurchased or with the option to repurchase were $13.0
billion and $10.8 billion, respectively. Additionally, real estate
owned resulting from repurchases of loans sold to U.S. government
agencies was $1.9 billion and $579 million as of December 31,
2010 and 2009, respectively. Substantially all of these loans and
real estate continue to be insured or guaranteed by U.S. govern-
ment agencies and, where applicable, reimbursement is proceeding
normally.
JPMorgan Chase’s interests in Firm-sponsored securitized assets
The following table summarizes the Firm’s interests in Firm-sponsored non-consolidated securitizations, which are carried at fair value on the
Firm’s Consolidated Balance Sheets at December 31, 2010 and 2009. The risk ratings are periodically reassessed as information becomes
available. As of December 31, 2010 and 2009, 66% and 76%, respectively, of the Firm’s retained securitization interests in Firm-sponsored
securitizations were risk-rated “A” or better.
Ratings profile of interests held
(
b
)(
c
)(
d
)
2010
2009
December 31, (in billions)
Investment
-
grade
Noninvestment
-
grade
Retained
interests
Investment
-
grade
Noninvestment
-
grade
Retained
interests(e)
Asset types
Residential mortgage:
Prime
(a)
$ 0.2 $ 0.5 $ 0.7 $ 0.7 $ 0.4 $ 1.1
Subprime
—
—
—
— — —
Option ARMs
—
—
—
0.1 — 0.1
Commercial and other
2.6
0.3
2.9
2.2 0.2 2.4
Total
$
2.8
$
0.8
$
3.6
$ 3.0 $ 0.6 $ 3.6
(a) Includes retained interests in Alt-A loans and re-securitization transactions.
(b) The ratings scale is presented on an S&P-equivalent basis.
(c) Includes $315 million and $139 million of investments acquired in the secondary market, but predominantly held for investment purposes, as of December 31, 2010
and 2009, respectively. Of this amount, $276 million and $108 million is classified as investment-grade as of December 31, 2010 and 2009, respectively.
(d) Excludes senior and subordinated securities of $200 million and $875 million at December 31, 2010 and 2009, respectively, which the Firm purchased in connection
with IB’s secondary market-making activities.
(e) Excludes $49 million of retained interests in student loans at December 31, 2009.