JP Morgan Chase 2014 Annual Report Download - page 117

JPMorgan Chase & Co./2014 Annual Report 115
level credit bureau data (which typically provides the
delinquency status of the senior lien). The estimated
balance of these high-risk seconds may vary from quarter
to quarter for reasons such as the movement of related
senior liens into and out of the 30+ day delinquency bucket.
Current high-risk seconds
December 31, (in billions) 2014 2013
Junior liens subordinate to:
Modified current senior lien $ 0.7 $ 0.9
Senior lien 30 – 89 days delinquent 0.5 0.6
Senior lien 90 days or more delinquent(a) 0.6 0.8
Total current high-risk seconds $ 1.8 $ 2.3
(a) Junior liens subordinate to senior liens that are 90 days or more past
due are classified as nonaccrual loans. At December 31, 2014 and
2013, excluded approximately $50 million and approximately $100
million, respectively, of junior liens that are performing but not
current, which were placed on nonaccrual in accordance with the
regulatory guidance.
Of the estimated $1.8 billion of current high-risk seconds at
December 31, 2014, the Firm owns approximately 10%
and services approximately 25% of the related senior lien
loans to the same borrowers. The performance of the Firm’s
junior lien loans is generally consistent regardless of
whether the Firm owns, services or does not own or service
the senior lien. The increased probability of default
associated with these higher-risk junior lien loans was
considered in estimating the allowance for loan losses.
Mortgage: Prime mortgages, including option adjustable-
rate mortgages (“ARMs”) and loans held-for-sale, increased
from December 31, 2013 due to higher retained
originations partially offset by paydowns, the run-off of
option ARM loans and the charge-off or liquidation of
delinquent loans. Excluding loans insured by U.S.
government agencies, both early-stage and late-stage
delinquencies showed improvement from December 31,
2013. Nonaccrual loans decreased from the prior year but
remain elevated primarily due to loss mitigation activities
and elongated foreclosure processing timelines. Net charge-
offs remain low, reflecting continued improvement in home
prices and delinquencies.
At December 31, 2014 and 2013, the Firm’s prime
mortgage portfolio included $12.4 billion and $14.3 billion,
respectively, of mortgage loans insured and/or guaranteed
by U.S. government agencies, of which $9.7 billion and $9.6
billion, respectively, were 30 days or more past due (of
these past due loans, $7.8 billion and $8.4 billion,
respectively, were 90 days or more past due). The Firm has
entered into a settlement regarding loans insured under
federal mortgage insurance programs overseen by the FHA,
HUD, and VA; the Firm will continue to monitor exposure on
future claim payments for government insured loans, but
any financial impact related to exposure on future claims is
not expected to be significant and was considered in
estimating the allowance for loan losses. For further
discussion of the settlement, see Note 31.
At December 31, 2014 and 2013, the Firm’s prime
mortgage portfolio included $16.3 billion and $15.6 billion,
respectively, of interest-only loans, which represented 15%
and 18%, respectively, of the prime mortgage portfolio.
These loans have an interest-only payment period generally
followed by an adjustable-rate or fixed-rate fully amortizing
payment period to maturity and are typically originated as
higher-balance loans to higher-income borrowers. To date,
losses on this portfolio generally have been consistent with
the broader prime mortgage portfolio and the Firm’s
expectations. The Firm continues to monitor the risks
associated with these loans.
Subprime mortgages continued to decrease due to portfolio
runoff. Early-stage and late-stage delinquencies have
improved from December 31, 2013, but remain at elevated
levels. Net charge-offs continued to improve as a result of
improvement in home prices and delinquencies.
Auto: Auto loans increased from December 31, 2013 as
new originations outpaced paydowns and payoffs.
Nonaccrual loans improved compared with December 31,
2013. Net charge-offs for the year ended December 31,
2014 increased compared with the prior year, reflecting
higher average loss per default as national used car
valuations declined from historically strong levels. The auto
loan portfolio reflects a high concentration of prime-quality
credits.
Business banking: Business banking loans increased from
December 31, 2013 due to an increase in loan originations.
Nonaccrual loans improved compared with December 31,
2013. Net charge-offs for the year ended December 31,
2014 decreased from the prior year.
Student and other: Student and other loans decreased from
December 31, 2013 due primarily to the run-off of the
student loan portfolio. Student nonaccrual loans increased
from December 31, 2013 due to a modification program
began in May 2014 that extended the deferment period for
up to 24 months for certain student loans, which resulted in
extending the maturity of these loans at their original
contractual interest rates.
Purchased credit-impaired loans: PCI loans acquired in the
Washington Mutual transaction decreased as the portfolio
continues to run off.
As of December 31, 2014, approximately 16% of the
option ARM PCI loans were delinquent and approximately
57% of the portfolio has been modified into fixed-rate, fully
amortizing loans. Substantially all of the remaining loans
are making amortizing payments, although such payments
are not necessarily fully amortizing. This latter group of
loans is subject to the risk of payment shock due to future
payment recast. Default rates generally increase on option
ARM loans when payment recast results in a payment
increase. The expected increase in default rates is
considered in the Firm’s quarterly impairment assessment.