JP Morgan Chase 2012 Annual Report Download - page 245

JPMorgan Chase & Co./2012 Annual Report 255
Consumer, excluding credit card, loan portfolio
Consumer loans, excluding credit card loans, consist
primarily of residential mortgages, home equity loans and
lines of credit, auto loans, business banking loans, and
student and other loans, with a primary focus on serving
the prime consumer credit market. The portfolio also
includes home equity loans secured by junior liens and
mortgage loans with interest-only payment options to
predominantly prime borrowers, as well as certain
payment-option loans originated by Washington Mutual that
may result in negative amortization.
The table below provides information about retained
consumer loans, excluding credit card, by class.
December 31, (in millions) 2012 2011
Residential real estate – excluding PCI
Home equity:
Senior lien $ 19,385 $ 21,765
Junior lien 48,000 56,035
Mortgages:
Prime, including option ARMs 76,256 76,196
Subprime 8,255 9,664
Other consumer loans
Auto 49,913 47,426
Business banking 18,883 17,652
Student and other 12,191 14,143
Residential real estate – PCI
Home equity 20,971 22,697
Prime mortgage 13,674 15,180
Subprime mortgage 4,626 4,976
Option ARMs 20,466 22,693
Total retained loans $ 292,620 $ 308,427
Delinquency rates are a primary credit quality indicator for
consumer loans. Loans that are more than 30 days past due
provide an early warning of borrowers who may be
experiencing financial difficulties and/or who may be
unable or unwilling to repay the loan. As the loan continues
to age, it becomes more clear that the borrower is likely
either unable or unwilling to pay. In the case of residential
real estate loans, late-stage delinquencies (greater than
150 days past due) are a strong indicator of loans that will
ultimately result in a foreclosure or similar liquidation
transaction. In addition to delinquency rates, other credit
quality indicators for consumer loans vary based on the
class of loan, as follows:
• For residential real estate loans, including both non-PCI
and PCI portfolios, the current estimated LTV ratio, or
the combined LTV ratio in the case of junior lien loans, is
an indicator of the potential loss severity in the event of
default. Additionally, LTV or combined LTV can provide
insight into a borrower’s continued willingness to pay, as
the delinquency rate of high-LTV loans tends to be
greater than that for loans where the borrower has
equity in the collateral. The geographic distribution of
the loan collateral also provides insight as to the credit
quality of the portfolio, as factors such as the regional
economy, home price changes and specific events such
as natural disasters, will affect credit quality. The
borrower’s current or “refreshed” FICO score is a
secondary credit-quality indicator for certain loans, as
FICO scores are an indication of the borrower’s credit
payment history. Thus, a loan to a borrower with a low
FICO score (660 or below) is considered to be of higher
risk than a loan to a borrower with a high FICO score.
Further, a loan to a borrower with a high LTV ratio and a
low FICO score is at greater risk of default than a loan to
a borrower that has both a high LTV ratio and a high
FICO score.
• For scored auto, scored business banking and student
loans, geographic distribution is an indicator of the
credit performance of the portfolio. Similar to residential
real estate loans, geographic distribution provides
insights into the portfolio performance based on
regional economic activity and events.
• Risk-rated business banking and auto loans are similar to
wholesale loans in that the primary credit quality
indicators are the risk rating that is assigned to the loan
and whether the loans are considered to be criticized
and/or nonaccrual. Risk ratings are reviewed on a
regular and ongoing basis by Credit and Risk
Management and are adjusted as necessary for updated
information about borrowers’ ability to fulfill their
obligations. For further information about risk-rated
wholesale loan credit quality indicators, see page 271 of
this Note.
Residential real estate – excluding PCI loans
The following table provides information by class for
residential real estate – excluding retained PCI loans in the
consumer, excluding credit card, portfolio segment.
The following factors should be considered in analyzing
certain credit statistics applicable to the Firm’s residential
real estate – excluding PCI loans portfolio: (i) junior lien
home equity loans may be fully charged off when the loan
becomes 180 days past due, and the value of the collateral
does not support the repayment of the loan, resulting in
relatively high charge-off rates for this product class; and
(ii) the lengthening of loss-mitigation timelines may result
in higher delinquency rates for loans carried at the net
realizable value of the collateral that remain on the Firm’s
Consolidated Balance Sheets.