JP Morgan Chase 2013 Annual Report Download - page 316

Notes to consolidated financial statements
322 JPMorgan Chase & Co./2013 Annual Report
therefore, are not recorded on the Consolidated Balance
Sheets until settlement date. At December 31, 2013 and
2012, the amount of commitments related to forward
starting reverse repurchase agreements and securities
borrowing agreements were $9.9 billion and $13.2 billion,
respectively. Commitments related to unsettled reverse
repurchase agreements and securities borrowing
agreements with regular way settlement periods were
$28.3 billion and $21.7 billion at December 31, 2013 and
2012, respectively.
Loan sales- and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm’s mortgage loan sale and
securitization activities with the GSEs and other mortgage
loan sale and private-label securitization transactions, as
described in Note 16 on pages 288–299 of this Annual
Report, the Firm has made representations and warranties
that the loans sold meet certain requirements. The Firm has
been, and may be, required to repurchase loans and/or
indemnify the GSEs (e.g., with “make-whole” payments to
reimburse the GSEs for their realized losses on liquidated
loans) and other investors for losses due to material
breaches of these representations and warranties. To the
extent that repurchase demands that are received relate to
loans that the Firm purchased from third parties that
remain viable, the Firm typically will have the right to seek a
recovery of related repurchase losses from the third party.
Generally, the maximum amount of future payments the
Firm would be required to make for breaches of these
representations and warranties would be equal to the
unpaid principal balance of such loans that are deemed to
have defects that were sold to purchasers (including
securitization-related SPEs) plus, in certain circumstances,
accrued interest on such loans and certain expense.
On October 25, 2013, the Firm announced that it had
reached a $1.1 billion agreement with the FHFA to resolve,
other than certain limited types of exposures, outstanding
and future mortgage repurchase demands associated with
loans sold to the GSEs from 2000 to 2008 (“FHFA
Settlement Agreement”). The majority of the mortgage
repurchase demands that the Firm had received from the
GSEs related to loans originated from 2005 to 2008.
The Firm has recognized a mortgage repurchase liability of
$681 million and $2.8 billion as of December 31, 2013 and
2012, respectively. The amount of the mortgage
repurchase liability at December 31, 2013, relates to
repurchase losses associated with loans sold in connection
with loan sale and securitization transactions with the GSEs
that are not covered by the FHFA Settlement Agreement
(e.g., post-2008 loan sale and securitization transactions,
mortgage insurance rescissions and certain mortgage
insurance settlement-related exposures, as well as certain
other specific exclusions).
The following table summarizes the change in the mortgage
repurchase liability for each of the periods presented.
Summary of changes in mortgage repurchase liability
Year ended December 31,
(in millions) 2013 2012 2011
Repurchase liability at beginning of
period $ 2,811 $ 3,557 $ 3,285
Net realized losses(a)(b) (1,561) (1,158) (1,263)
Reclassification to
litigation reserve(c) (179) ——
Provision for repurchase losses(d) (390) 412 1,535
Repurchase liability at end of
period $ 681 $ 2,811 $ 3,557
(a) Presented net of third-party recoveries and include principal losses
and accrued interest on repurchased loans, “make-whole” settlements,
settlements with claimants, and certain related expense. Make-whole
settlements were $414 million, $524 million and $640 million, for the
years ended December 31, 2013, 2012 and 2011, respectively.
(b) The 2013 amount includes $1.1 billion, for the FHFA Settlement
Agreement.
(c) Prior to December 31, 2013, in the absence of a repurchase demand
by a party to the relevant contracts, the Firm’s decision to repurchase
loans from private-label securitization trusts when it determined it had
an obligation to do so was recognized in the mortgage repurchase
liability. Pursuant to the terms of the RMBS Trust Settlement, all
repurchase obligations relating to the subject private-label
securitization trusts, whether resulting from a repurchase demand or
otherwise, are now recognized in the Firm’s litigation reserves for this
settlement. The RMBS Trust Settlement is fully accrued as of December
31, 2013.
(d) Included a provision related to new loan sales of $20 million, $112
million and $52 million, for the years ended December 31, 2013,
2012 and 2011, respectively.
Private label securitizations
The liability related to repurchase demands associated with
private label securitizations is separately evaluated by the
Firm in establishing its litigation reserves.
On November 15, 2013, the Firm announced that it had
reached a $4.5 billion agreement with 21 major
institutional investors to make a binding offer to the
trustees of 330 residential mortgage-backed securities
trust issued by J.P.Morgan, Chase, and Bear Stearns (“RMBS
Trust Settlement”) to resolve all representation and
warranty claims, as well as all servicing claims, on all trust
issued by J.P.Morgan, Chase, and Bear Stearns between
2005 and 2008. The RMBS Trust Settlement may be subject
to court approval.
In addition, from 2005 to 2008, Washington Mutual made
certain loan level representations and warranties in
connection with approximately $165 billion of residential
mortgage loans that were originally sold or deposited into
private-label securitizations by Washington Mutual. Of the
$165 billion, approximately $75 billion has been repaid. In
addition, approximately $47 billion of the principal amount
of such loans has liquidated with an average loss severity of
59%. Accordingly, the remaining outstanding principal
balance of these loans as of December 31, 2013, was
approximately $43 billion, of which $10 billion was 60 days
or more past due. The Firm believes that any repurchase