JP Morgan Chase 2015 Annual Report Download - page 127

JPMorgan Chase & Co./2015 Annual Report 117
Current high-risk seconds
December 31, (in billions) 2015 2014
Junior liens subordinate to:
Modified current senior lien $ 0.6 $ 0.7
Senior lien 30 – 89 days delinquent 0.4 0.5
Senior lien 90 days or more delinquent(a) 0.4 0.6
Total current high-risk seconds $ 1.4 $ 1.8
(a) Junior liens subordinate to senior liens that are 90 days or more past
due are classified as nonaccrual loans. At December 31, 2015 and
2014, excluded approximately $25 million and $50 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 $1.4 billion of current high-risk junior
liens at December 31, 2015, the Firm owns approximately
10% and services approximately 25% of the related senior
lien loans to the same borrowers. 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 ARMs and
loans held-for-sale, increased from December 31, 2014 due
to originations of high-quality prime mortgage loans that
have been retained partially offset by paydowns, the run-off
of option ARM loans and the charge-off or liquidation of
delinquent loans. High-quality loan originations for the year
ending December 31, 2015 included both jumbo and
conforming loans, primarily consisting of fixed interest rate
loans. Excluding loans insured by U.S. government agencies,
both early-stage and late-stage delinquencies declined from
December 31, 2014. Nonaccrual loans decreased from the
prior year but remain elevated primarily as a result of loss
mitigation activities. Net charge-offs remain low, reflecting
continued improvement in home prices and delinquencies.
At December 31, 2015 and 2014, the Firm’s prime
mortgage portfolio included $11.1 billion and $12.4 billion,
respectively, of mortgage loans insured and/or guaranteed
by U.S. government agencies, of which $8.4 billion and $9.7
billion, respectively, were 30 days or more past due (of
these past due loans, $6.3 billion and $7.8 billion,
respectively, were 90 days or more past due). In 2014, the
Firm entered into a settlement regarding loans insured
under federal mortgage insurance programs overseen by
the Federal Housing Administration (“FHA”), the U.S.
Department of Housing and Urban Development (“HUD”),
and the U.S. Department of Veterans Affairs (“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.
At December 31, 2015 and 2014, the Firm’s prime
mortgage portfolio included $17.7 billion and $16.3 billion,
respectively, of interest-only loans, which represented 11%
and 15%, 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, 2014. Net charge-offs
continued to improve as a result of improvement in home
prices and delinquencies.
Auto: Auto loans increased from December 31, 2014, as
new originations outpaced paydowns and payoffs.
Nonaccrual loans were stable compared with December 31,
2014. Net charge-offs for the year ended December 31,
2015 increased compared with the prior year, as a result of
higher loan balances and a moderate increase in loss
severity. The auto loan portfolio predominantly consists of
prime-quality credits.
Business banking: Business banking loans increased from
December 31, 2014 due to an increase in loan originations.
Nonaccrual loans declined from December 31, 2014 and
net charge-offs for the year ended December 31, 2015
decreased from the prior year due to continued discipline in
credit underwriting.
Student and other: Student and other loans decreased from
December 31, 2014 due primarily to the run-off of the
student loan portfolio as the Firm ceased originations of
student loans during the fourth quarter of 2013.
Nonaccrual loans and net charge-offs also declined as a
result of the run-off of the student loan portfolio.
Purchased credit-impaired loans: PCI loans acquired in the
Washington Mutual transaction decreased as the portfolio
continues to run off.
As of December 31, 2015, approximately 14% of the
option ARM PCI loans were delinquent and approximately
64% 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.