JP Morgan Chase 2012 Annual Report Download - page 136

Management’s discussion and analysis
146 JPMorgan Chase & Co./2012 Annual Report
Nonperforming assets
The following table presents information as of
December 31, 2012 and 2011, about consumer, excluding
credit card, nonperforming assets.
Nonperforming assets(a)
December 31, (in millions) 2012 2011
Nonaccrual loans(b)
Home equity – senior lien $ 931 $ 495
Home equity – junior lien 2,277 792
Prime mortgage, including option ARMs 3,445 3,462
Subprime mortgage 1,807 1,781
Auto 163 118
Business banking 481 694
Student and other 70 69
Total nonaccrual loans 9,174 7,411
Assets acquired in loan satisfactions
Real estate owned 647 802
Other 37 44
Total assets acquired in loan satisfactions 684 846
Total nonperforming assets $ 9,858 $ 8,257
(a) At December 31, 2012 and 2011, nonperforming assets excluded:
(1) mortgage loans insured by U.S. government agencies of $10.6
billion and $11.5 billion, respectively, that are 90 or more days past
due; (2) real estate owned insured by U.S. government agencies of
$1.6 billion and $954 million, respectively; and (3) student loans
insured by U.S. government agencies under the FFELP of $525
million and $551 million, respectively, that are 90 or more days past
due. These amounts were excluded as reimbursement of insured
amounts is proceeding normally.
(b) Excludes PCI loans that were acquired as part of the Washington
Mutual transaction, which are accounted for on a pool basis. Since
each pool is accounted for as a single asset with a single composite
interest rate and an aggregate expectation of cash flows, the past-
due status of the pools, or that of individual loans within the pools, is
not meaningful. Because the Firm is recognizing interest income on
each pool of loans, they are all considered to be performing.
Nonaccrual loans: Total consumer, excluding credit card,
nonaccrual loans were $9.2 billion at December 31, 2012,
compared with $7.4 billion at December 31, 2011.
Excluding the combined impacts of the Chapter 7 loans and
the performing junior lien home equity loans discussed
below, total consumer, excluding credit card, nonaccrual
loans would have been $6.2 billion at December 31, 2012,
compared with $7.4 billion at December 31, 2011. In
addition to the combined impacts of the Chapter 7 loans
and the performing junior lien home equity loans, elongated
foreclosure processing timelines continue to result in
elevated levels of nonaccrual loans in the residential real
estate portfolios.
Nonaccrual loans in the residential real estate portfolio
totaled $8.5 billion at December 31, 2012, of which 42%
were greater than 150 days past due, compared with
nonaccrual residential real estate loans of $6.5 billion at
December 31, 2011, of which 69% were greater than 150
days past due. In the aggregate, the unpaid principal
balance of residential real estate loans greater than 150
days past due was charged down by approximately 52%
and 50% to estimated net realizable value of the collateral
at December 31, 2012 and 2011, respectively.
At December 31, 2012, consumer, excluding credit card,
nonaccrual loans included $1.8 billion of Chapter 7 loans,
consisting of $450 million of senior lien home equity, $440
million of junior lien home equity, $500 million of prime
mortgage, including option ARMs, $357 million of subprime
mortgages and $51 million of auto loans. Because the
Chapter 7 loans are accounted for as collateral-dependent
loans and reported at the net realizable value of the
collateral, these loans did not require an additional
allowance for loan losses. Certain of these individual loans
had previously been reported as performing TDRs (e.g.,
those loans that had been previously modified under one of
the Firm’s loss mitigation programs and that subsequently
made at least six payments under the modified payment
terms).
At December 31, 2012, nonaccrual loans in the residential
real estate portfolio also included $1.2 billion of performing
junior lien home equity loans that are subordinate to senior
liens that are 90 days or more past due. For more
information on the change in reporting of these junior liens,
see the home equity portfolio analysis discussion on pages
140–141 of this Annual Report.
Modified loans have contributed to an elevated level of
nonaccrual loans, since the Firm’s policy requires modified
loans that are on nonaccrual status to remain on nonaccrual
status until payment is reasonably assured and the
borrower has made a minimum of six payments under the
modified terms. At December 31, 2012 and 2011, modified
residential real estate loans of $4.4 billion and $2.0 billion,
respectively, were classified as nonaccrual loans.
Real estate owned (“REO”): REO assets are managed for
prompt sale and disposition at the best possible economic
value. REO assets are those individual properties where the
Firm receives the property in satisfaction of a debt (e.g., by
taking legal title or physical possession). The Firm generally
recognizes REO assets at the completion of the foreclosure
process or upon execution of a deed in lieu of foreclosure
transaction with the borrower. REO assets, excluding those
insured by U.S. government agencies, decreased by $155
million from $802 million at December 31, 2011, to $647
million at December 31, 2012.
Mortgage servicing-related matters
The financial crisis resulted in unprecedented levels of
delinquencies and defaults of 1-4 family residential real
estate loans. Such loans required varying degrees of loss
mitigation activities. It is the Firm’s goal that foreclosure in
these situations be a last resort, and accordingly, the Firm
has made, and continues to make, significant efforts to help
borrowers stay in their homes. Since the third quarter of
2010, the Firm has prevented two foreclosures for every
foreclosure completed; foreclosure-prevention methods
include loan modification, short sales and other means.
The Firm has a well-defined foreclosure prevention process
when a borrower fails to pay on his or her loan. The Firm
attempts to contact the borrower multiple times and in
various ways in an effort to pursue home retention or other