JP Morgan Chase 2012 Annual Report Download - page 128

Management’s discussion and analysis
138 JPMorgan Chase & Co./2012 Annual Report
CONSUMER CREDIT PORTFOLIO
JPMorgan Chase’s consumer portfolio consists primarily of
residential real estate loans, credit card loans, auto loans,
business banking loans, and student loans. The Firm’s
primary focus is on serving the prime segment of the
consumer credit market. For further information on
consumer loans, see Note 14 on pages 250–275 of this
Annual Report.
A substantial portion of the consumer loans acquired in the
Washington Mutual transaction were identified as PCI based
on an analysis of high-risk characteristics, including product
type, loan-to-value (“LTV”) ratios, FICO risk scores and
delinquency status. These PCI loans are accounted for on a
pool basis, and the pools are considered to be performing.
For further information on PCI loans see Note 14 on pages
250–275 of this Annual Report.
The credit performance of the consumer portfolio improved
as the economy continued to slowly expand during 2012,
resulting in a reduction in estimated credit losses,
particularly in the residential real estate and credit card
portfolios. However, high unemployment relative to the
historical norm and weak housing prices continue to
negatively impact the number of residential real estate loans
being charged off and the severity of loss recognized on
these loans. Early-stage residential real estate delinquencies
(30–89 days delinquent), excluding government guaranteed
loans, declined during the first half of the year, but increased
during the second half of the year primarily due to seasonal
impacts and the effect of Superstorm Sandy. Late-stage
delinquencies (150+ days delinquent) continued to decline,
but remain elevated. The elevated level of the late-stage
delinquent loans is due, in part, to loss mitigation activities
currently being undertaken and to elongated foreclosure
processing timelines. Losses related to these loans continue
to be recognized in accordance with the Firm’s standard
charge-off practices, but some delinquent loans that would
otherwise have been foreclosed upon remain in the
mortgage and home equity loan portfolios. In addition to
these elevated levels of delinquencies, high unemployment
and weak housing prices, uncertainties regarding the
ultimate success of loan modifications, and the risk attributes
of certain loans within the portfolio (e.g., loans with high LTV
ratios, junior lien loans that are subordinate to a delinquent
or modified senior lien) continue to contribute to uncertainty
regarding overall residential real estate portfolio
performance and have been considered in estimating the
allowance for loan losses.