JP Morgan Chase 2014 Annual Report Download - page 118

Management’s discussion and analysis
116 JPMorgan Chase & Co./2014 Annual Report
The following table provides a summary of lifetime principal
loss estimates included in either the nonaccretable
difference or the allowance for loan losses.
Summary of lifetime principal loss estimates
December 31,
(in billions) Lifetime loss
estimates(a)
LTD liquidation
losses(b)
2014 2013 2014 2013
Home equity $ 14.6 $ 14.7 $ 12.4 $ 12.1
Prime mortgage 3.8 3.8 3.5 3.3
Subprime mortgage 3.3 3.3 2.8 2.6
Option ARMs 9.9 10.2 9.3 8.8
Total $ 31.6 $ 32.0 $ 28.0 $ 26.8
(a) Includes the original nonaccretable difference established in purchase
accounting of $30.5 billion for principal losses plus additional principal
losses recognized subsequent to acquisition through the provision and
allowance for loan losses. The remaining nonaccretable difference for
principal losses was $2.3 billion and $3.8 billion at December 31, 2014
and 2013, respectively.
(b) Life-to-date (“LTD”) liquidation losses represent both realization of loss
upon loan resolution and any principal forgiven upon modification.
Lifetime principal loss estimates declined from
December 31, 2013, to December 31, 2014, reflecting
improvement in home prices and delinquencies. The decline
in lifetime principal loss estimates during the year ended
December 31, 2014, resulted in a $300 million reduction of
the PCI allowance for loan losses related to option ARM
loans. In addition, for the year ended December 31, 2014,
PCI write-offs of $533 million were recorded against the
prime mortgage allowance for loan losses. For further
information on the Firm’s PCI loans, including write-offs, see
Note 14.
Geographic composition of residential real estate loans
At December 31, 2014, $94.3 billion, or 63% of total retained residential real estate loan portfolio, excluding mortgage loans
insured by U.S. government agencies and PCI loans, were concentrated in California, New York, Illinois, Florida and Texas,
compared with $85.9 billion, or 62%, at December 31, 2013. California had the greatest concentration of these loans with
26% at December 31, 2014, compared with 25% at December 31, 2013. The unpaid principal balance of PCI loans
concentrated in these five states represented 74% of total PCI loans at both December 31, 2014 and December 31, 2013. For
further information on the geographic composition of the Firm’s residential real estate loans, see Note 14.
Current estimated LTVs of residential real estate
loans
The current estimated average loan-to-value (“LTV”) ratio
for residential real estate loans retained, excluding
mortgage loans insured by U.S. government agencies and
PCI loans, was 71% at December 31, 2014, compared with
75% at December 31, 2013.
Although home prices continue to recover, the decline in
home prices since 2007 has had a significant impact on the
collateral values underlying the Firm’s residential real
estate loan portfolio. In general, the delinquency rate for
loans with high LTV ratios is greater than the delinquency
rate for loans in which the borrower has greater equity in
the collateral. While a large portion of the loans with
current estimated LTV ratios greater than 100% continue
to pay and are current, the continued willingness and ability
of these borrowers to pay remains a risk.