JP Morgan Chase 2015 Annual Report Download - page 257

JPMorgan Chase & Co./2015 Annual Report 247
Consumer, excluding credit card, loan portfolio
Consumer loans, excluding credit card loans, consist
primarily of residential mortgages, home equity loans and
lines of credit, auto loans, business banking loans, and
student and other loans, with a focus on serving the prime
consumer credit market. The portfolio also includes home
equity loans secured by junior liens, prime mortgage loans
with an interest-only payment period, and certain payment-
option loans originated by Washington Mutual that may
result in negative amortization.
The table below provides information about retained
consumer loans, excluding credit card, by class.
December 31, (in millions) 2015 2014
Residential real estate – excluding PCI
Home equity:
Senior lien $ 14,848 $ 16,367
Junior lien 30,711 36,375
Mortgages:
Prime, including option ARMs 162,549 104,921
Subprime 3,690 5,056
Other consumer loans
Auto 60,255 54,536
Business banking 21,208 20,058
Student and other 10,096 10,970
Residential real estate – PCI
Home equity 14,989 17,095
Prime mortgage 8,893 10,220
Subprime mortgage 3,263 3,673
Option ARMs 13,853 15,708
Total retained loans $ 344,355 $ 294,979
Delinquency rates are a primary credit quality indicator for
consumer loans. Loans that are more than 30 days past due
provide an early warning of borrowers who may be
experiencing financial difficulties and/or who may be
unable or unwilling to repay the loan. As the loan continues
to age, it becomes more clear that the borrower is likely
either unable or unwilling to pay. In the case of residential
real estate loans, late-stage delinquencies (greater than
150 days past due) are a strong indicator of loans that will
ultimately result in a foreclosure or similar liquidation
transaction. In addition to delinquency rates, other credit
quality indicators for consumer loans vary based on the
class of loan, as follows:
• For residential real estate loans, including both non-PCI
and PCI portfolios, the current estimated LTV ratio, or
the combined LTV ratio in the case of junior lien loans, is
an indicator of the potential loss severity in the event of
default. Additionally, LTV or combined LTV can provide
insight into a borrower’s continued willingness to pay, as
the delinquency rate of high-LTV loans tends to be
greater than that for loans where the borrower has
equity in the collateral. The geographic distribution of
the loan collateral also provides insight as to the credit
quality of the portfolio, as factors such as the regional
economy, home price changes and specific events such
as natural disasters, will affect credit quality. The
borrower’s current or “refreshed” FICO score is a
secondary credit-quality indicator for certain loans, as
FICO scores are an indication of the borrower’s credit
payment history. Thus, a loan to a borrower with a low
FICO score (660 or below) is considered to be of higher
risk than a loan to a borrower with a high FICO score.
Further, a loan to a borrower with a high LTV ratio and a
low FICO score is at greater risk of default than a loan to
a borrower that has both a high LTV ratio and a high
FICO score.
• For scored auto, scored business banking and student
loans, geographic distribution is an indicator of the
credit performance of the portfolio. Similar to
residential real estate loans, geographic distribution
provides insights into the portfolio performance based
on regional economic activity and events.
• Risk-rated business banking and auto loans are similar
to wholesale loans in that the primary credit quality
indicators are the risk rating that is assigned to the loan
and whether the loans are considered to be criticized
and/or nonaccrual. Risk ratings are reviewed on a
regular and ongoing basis by Credit Risk Management
and are adjusted as necessary for updated information
about borrowers’ ability to fulfill their obligations. For
further information about risk-rated wholesale loan
credit quality indicators, see pages 259–260 of this
Note.
Residential real estate — excluding PCI loans
The following table provides information by class for
residential real estate — excluding retained PCI loans in the
consumer, excluding credit card, portfolio segment.
The following factors should be considered in analyzing
certain credit statistics applicable to the Firm’s residential
real estate — excluding PCI loans portfolio: (i) junior lien
home equity loans may be fully charged off when the loan
becomes 180 days past due, and the value of the collateral
does not support the repayment of the loan, resulting in
relatively high charge-off rates for this product class; and
(ii) the lengthening of loss-mitigation timelines may result
in higher delinquency rates for loans carried at the net
realizable value of the collateral that remain on the Firm’s
Consolidated balance sheets.