JP Morgan Chase 2013 Annual Report Download - page 88

Management’s discussion and analysis
94 JPMorgan Chase & Co./2013 Annual Report
Credit data and quality statistics
As of or for the year ended
December 31,
(in millions, except ratios) 2013 2012 2011
Net charge-offs, excluding
PCI loans:(a)(b)
Home equity $ 966 $ 2,385 $ 2,472
Prime mortgage, including
option ARMs 41 454 682
Subprime mortgage 90 486 626
Other 10 16 25
Total net charge-offs,
excluding PCI loans $ 1,107 $ 3,341 $ 3,805
Net charge-off rate,
excluding PCI loans:(b)
Home equity 1.55% 3.28% 2.98%
Prime mortgage, including
option ARMs 0.09 1.07 1.45
Subprime mortgage 1.17 5.43 5.98
Other 1.70 2.37 3.23
Total net charge-off rate,
excluding PCI loans 0.96 2.68 2.70
Net charge-off rate –
reported:(a)(b)
Home equity 1.17% 2.52% 2.32%
Prime mortgage, including
option ARMs 0.05 0.58 0.78
Subprime mortgage 0.74 3.54 4.00
Other 1.70 2.37 3.23
Total net charge-off rate –
reported 0.64 1.79 1.81
30+ day delinquency rate,
excluding PCI loans(c) 3.66% 5.03% 5.69%
Allowance for loan losses,
excluding PCI loans $ 2,568 $ 4,868 $ 8,718
Allowance for PCI loans(a) 4,158 5,711 5,711
Allowance for loan losses $ 6,726 $ 10,579 $ 14,429
Nonperforming assets(d)(e) 6,919 8,439 6,638
Allowance for loan losses to
period-end loans retained 4.00% 5.97% 7.29%
Allowance for loan losses to
period-end loans retained,
excluding PCI loans 2.23 4.14 6.58
(a) Net charge-offs and net charge-off rates for the year ended December 31,
2013 excluded $53 million of write-offs in the PCI portfolio. These write-offs
decreased the allowance for loan losses for PCI loans. For further information,
see Consumer Credit Portfolio on pages 120–129 of this Annual Report.
(b) Net charge-offs and net charge-off rates for the year ended December 31, 2012,
included $744 million of charge-offs related to regulatory guidance. Excluding
these charges-offs, net charge-offs for the year ended December 31, 2012,
would have been $1.8 billion, $410 million and $416 million for the home
equity, prime mortgage, including option ARMs, and subprime mortgage
portfolios, respectively. Net charge-off rates for the same period, excluding these
charge-offs and PCI loans, would have been 2.41%, 0.97% and 4.65% for the
home equity, prime mortgage, including option ARMs, and subprime mortgage
portfolios, respectively. For further information, see Consumer Credit Portfolio
on pages 120–129 of this Annual Report.
(c) The 30+ day delinquency rate for PCI loans was 15.31%, 20.14%, and 23.30%
at December 31, 2013, 2012 and 2011, respectively.
(d) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as they are all performing.
(e) Nonperforming assets at December 31, 2012, included loans based upon
regulatory guidance. For further information, see Consumer Credit Portfolio on
pages 120–129 of this Annual Report.
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. Foreclosure is usually a last resort, and
accordingly, the Firm has made, and continues to make,
significant efforts to help borrowers remain in their homes.
The Firm has a well-defined foreclosure prevention process
when a borrower fails to pay on his or her loan. The Firm
makes multiple attempts, in various ways, to contact the
borrower in an effort to pursue home retention or options
other than foreclosure. If the Firm is unable to contact a
borrower, the Firm completes various reviews of the
borrower’s facts and circumstances before a foreclosure
sale is completed. Over the last year, the average
delinquency period for the borrower at the time of
foreclosure was approximately 28 months.
The high volume of delinquent and defaulted mortgages
experienced during the financial crisis placed a significant
amount of stress on servicing operations in the industry.
The GSEs impose compensatory fees on mortgage servicers,
including the Firm, if such servicers are unable to comply
with the foreclosure timetables mandated by the GSEs. The
Firm has incurred, and continues to incur, compensatory
fees, which are reported in default servicing expense. The
Firm has made, and will continue to make changes to and
refine its mortgage operations to address mortgage
servicing, loss mitigation, and foreclosure issues.
Since 2011, the Firm has entered into Consent Orders and
settlements with federal and state governmental agencies
and private parties related to mortgage servicing,
origination, and residential mortgage-backed securities
activities. The terms of these Consent Orders and
settlements vary, but in general, required cash
compensatory payments or fines and/or “borrower relief,”
including principal reductions, refinancing, short sale
assistance, and other specified types of borrower relief. The
Firm has satisfied or is committed to satisfying these
obligations within the mandated timeframes.
Other obligations required under Consent Orders and
settlements, as well as under new regulatory requirements,
include enhanced mortgage servicing and foreclosure
standards and processes. Among other initiatives, the Firm
has implemented a new Customer Assistance Specialist
organization to serve as a single point of contact for
borrowers requiring assistance in the foreclosure or loss
mitigation process; implemented specific controls on “dual
tracking” of foreclosure and loss mitigation activities;
strengthened its compliance program to ensure mortgage
servicing and foreclosure operations comply with applicable
legal requirements; and made technological enhancements
to automate and streamline processes for document
management, payment processing, training, and skills
assessment. For further information on these settlements
and Consent Orders, see Note 2 and Note 31 on pages 192–