JP Morgan Chase 2012 Annual Report Download - page 273

JPMorgan Chase & Co./2012 Annual Report 283
Residential mortgage
The Firm securitizes residential mortgage loans originated
by CCB, as well as residential mortgage loans purchased
from third parties by either CCB or CIB. CCB generally
retains servicing for all residential mortgage loans
originated or purchased by CCB, and for certain mortgage
loans purchased by CIB. For securitizations serviced by CCB,
the Firm has the power to direct the significant activities of
the VIE because it is responsible for decisions related to
loan modifications and workouts. CCB may also retain an
interest upon securitization.
In addition, CIB engages in underwriting and trading
activities involving securities issued by Firm-sponsored
securitization trusts. As a result, CIB at times retains senior
and/or subordinated interests (including residual interests)
in residential mortgage securitizations upon securitization,
and/or reacquires positions in the secondary market in the
normal course of business. In certain instances, as a result
of the positions retained or reacquired by CIB or held by
CCB, when considered together with the servicing
arrangements entered into by CCB, the Firm is deemed to
be the primary beneficiary of certain securitization trusts.
See the table on page 288 of this Note for more information
on consolidated residential mortgage securitizations.
The Firm does not consolidate a residential mortgage
securitization (Firm-sponsored or third-party-sponsored)
when it is not the servicer (and therefore does not have the
power to direct the most significant activities of the trust)
or does not hold a beneficial interest in the trust that could
potentially be significant to the trust. At December 31,
2012 and 2011, the Firm did not consolidate the assets of
certain Firm-sponsored residential mortgage securitization
VIEs, in which the Firm had continuing involvement,
primarily due to the fact that the Firm did not hold an
interest in these trusts that could potentially be significant
to the trusts. See the table on page 288 of this Note for
more information on the consolidated residential mortgage
securitizations, and the table on the previous page of this
Note for further information on interests held in
nonconsolidated residential mortgage securitizations.
Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans,
and engages in underwriting and trading activities involving
the securities issued by securitization trusts. CIB may retain
unsold senior and/or subordinated interests in commercial
mortgage securitizations at the time of securitization but,
generally, the Firm does not service commercial loan
securitizations. For commercial mortgage securitizations
the power to direct the significant activities of the VIE
generally is held by the servicer or investors in a specified
class of securities (“controlling class”). See the table on
page 288 of this Note for more information on the
consolidated commercial mortgage securitizations, and the
table on the previous page of this Note for further
information on interests held in nonconsolidated
securitizations.
The Firm also securitizes automobile and student loans. The
Firm retains servicing responsibilities for all originated and
certain purchased student and automobile loans and has
the power to direct the activities of these VIEs through
these servicing responsibilities. See the table on page 288
of this Note for more information on the consolidated
student loan securitizations, and the table on the previous
page of this Note for further information on interests held
in nonconsolidated securitizations.
Re-securitizations
The Firm engages in certain re-securitization transactions in
which debt securities are transferred to a VIE in exchange
for new beneficial interests. These transfers occur in
connection with both agency (Fannie Mae, Freddie Mac and
Ginnie Mae) and nonagency (private-label) sponsored VIEs,
which may be backed by either residential or commercial
mortgages. The Firm’s consolidation analysis is largely
dependent on the Firm’s role and interest in the re-
securitization trusts. During the years ended December 31,
2012, 2011 and 2010, the Firm transferred $10.0 billion,
$24.9 billion and $33.9 billion, respectively, of securities to
agency VIEs, and $286 million, $381 million and $1.3
billion, respectively, of securities to private-label VIEs.
Most re-securitizations with which the Firm is involved are
client-driven transactions in which a specific client or group
of clients are seeking a specific return or risk profile. For
these transactions, the Firm has concluded that the
decision-making power of the entity is shared between the
Firm and its client(s), considering the joint effort and
decisions in establishing the re-securitization trust and its
assets, as well as the significant economic interest the client
holds in the re-securitization trust; therefore the Firm does
not consolidate the re-securitization VIE.