JP Morgan Chase 2013 Annual Report Download - page 120

Management’s discussion and analysis
126 JPMorgan Chase & Co./2013 Annual Report
The following table for PCI loans presents the current estimated LTV ratios, as well as the ratios of the carrying value of the
underlying loans to the current estimated collateral value. Because such loans were initially measured at fair value, the ratios
of the carrying value to the current estimated collateral value will be lower than the current estimated LTV ratios, which are
based on the unpaid principal balances. The estimated collateral values used to calculate these ratios do not represent actual
appraised loan-level collateral values; as such, the resulting ratios are necessarily imprecise and should therefore be viewed as
estimates.
LTV ratios and ratios of carrying values to current estimated collateral values – PCI loans
2013 2012
December 31,
(in millions,
except ratios)
Unpaid
principal
balance
Current
estimated
LTV ratio(a)
Net
carrying
value(c)
Ratio of net
carrying value
to current estimated
collateral value(c)
Unpaid
principal
balance
Current
estimated
LTV ratio(a)
Net
carrying
value(c)
Ratio of net
carrying value
to current estimated
collateral value(c)
Home equity $ 19,830 90% (b) $ 17,169 78% $ 22,343 111% (b) $ 19,063 95%
Prime mortgage 11,876 83 10,312 72 13,884 104 11,745 88
Subprime mortgage 5,471 91 3,995 66 6,326 107 4,246 72
Option ARMs 19,223 82 17,421 74 22,591 101 18,972 85
(a) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated at
least quarterly based on home valuation models that utilize nationally recognized home price index valuation estimates; such models incorporate actual
data to the extent available and forecasted data where actual data is not available.
(b) Represents current estimated combined LTV for junior home equity liens, which considers all available lien positions, as well as unused lines, related to the
property. All other products are presented without consideration of subordinate liens on the property.
(c) Net carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition and is also net of
the allowance for loan losses at December 31, 2013 and 2012 of $1.8 billion and $1.9 billion for home equity, $1.7 billion and $1.9 billion for prime
mortgage, $494 million and $1.5 billion for option ARMs, and $180 million and $380 million for subprime mortgage, respectively.
The current estimated average LTV ratios were 85% and
103% for California and Florida PCI loans, respectively, at
December 31, 2013, compared with 110% and 125%,
respectively, at December 31, 2012. Average LTV ratios
have declined consistent with recent improvement in home
prices. Although home prices have improved, home prices in
California and Florida are still lower than at the peak of the
housing market; this continues to negatively contribute to
current estimated average LTV ratios and the ratio of net
carrying value to current estimated collateral value for
loans in the PCI portfolio. Of the total PCI portfolio, 26%
had a current estimated LTV ratio greater than 100%, and
7% had a current LTV ratio of greater than 125% at
December 31, 2013, compared with 55% and 24%,
respectively, at December 31, 2012.
While the current estimated collateral value is greater than
the net carrying value of PCI loans, the ultimate
performance of this portfolio is highly dependent on
borrowers’ behavior and ongoing ability and willingness to
continue to make payments on homes with negative equity,
as well as on the cost of alternative housing. For further
information on the geographic composition and current
estimated LTVs of residential real estate – non-PCI and PCI
loans, see Note 14 on pages 258–283 of this Annual
Report.
Loan modification activities – residential real estate loans
For both the Firm’s on–balance sheet loans and loans
serviced for others, more than 1.5 million mortgage
modifications have been offered to borrowers and
approximately 734,000 have been approved since the
beginning of 2009. Of these, more than 725,000 have
achieved permanent modification as of December 31,
2013. Of the remaining modifications offered, 9% are in a
trial period or still being reviewed for a modification, while
91% have dropped out of the modification program or
otherwise were deemed not eligible for final modification.
The Firm is participating in the U.S. Treasury’s Making Home
Affordable (“MHA”) programs and is continuing to offer its
other loss-mitigation programs to financially distressed
borrowers who do not qualify for the U.S. Treasury’s
programs. The MHA programs include the Home Affordable
Modification Program (“HAMP”) and the Second Lien
Modification Program (“2MP”). The Firm’s other loss-
mitigation programs for troubled borrowers who do not
qualify for HAMP include the traditional modification
programs offered by the GSEs and other governmental
agencies, as well as the Firm’s proprietary modification
programs, which include concessions similar to those
offered under HAMP and 2MP but with expanded eligibility
criteria. In addition, the Firm has offered specific targeted
modification programs to higher risk borrowers, many of
whom were current on their mortgages prior to
modification. For further information about how loans are
modified, see Note 14, Loan modifications, on pages 268–
273 of this Annual Report.
Loan modifications under HAMP and under one of the Firm’s
proprietary modification programs, which are largely
modeled after HAMP, require at least three payments to be
made under the new terms during a trial modification
period, and must be successfully re-underwritten with
income verification before the loan can be permanently
modified. In the case of specific targeted modification
programs, re-underwriting the loan or a trial modification
period is generally not required, unless the targeted loan is