JP Morgan Chase 2015 Annual Report Download - page 282

Notes to consolidated financial statements
272 JPMorgan Chase & Co./2015 Annual Report
Loan securitizations
The Firm has securitized and sold a variety of loans,
including residential mortgage, credit card, student and
commercial (primarily related to real estate) loans, as well
as debt securities. The purposes of these securitization
transactions were to satisfy investor demand and to
generate liquidity for the Firm.
For loan securitizations in which the Firm is not required to
consolidate the trust, the Firm records the transfer of the
loan receivable to the trust as a sale when all of the
following accounting criteria for a sale are met: (1) the
transferred financial assets are legally isolated from the
Firm’s creditors; (2) the transferee or beneficial interest
holder can pledge or exchange the transferred financial
assets; and (3) the Firm does not maintain effective control
over the transferred financial assets (e.g., the Firm cannot
repurchase the transferred assets before their maturity and
it does not have the ability to unilaterally cause the holder
to return the transferred assets).
For loan securitizations accounted for as a sale, the Firm
recognizes a gain or loss based on the difference between
the value of proceeds received (including cash, beneficial
interests, or servicing assets received) and the carrying
value of the assets sold. Gains and losses on securitizations
are reported in noninterest revenue.
Securitization activity
The following table provides information related to the Firm’s securitization activities for the years ended December 31, 2015,
2014 and 2013, related to assets held in JPMorgan Chase-sponsored securitization entities that were not consolidated by the
Firm, and where sale accounting was achieved based on the accounting rules in effect at the time of the securitization.
2015 2014 2013
Year ended December 31,
(in millions, except rates)(a)
Residential
mortgage(d)(e)
Commercial
and other(e)(f)
Residential
mortgage(d)(e)
Commercial
and other(e)(f)
Residential
mortgage(d)(e)
Commercial
and other(e)(f)
Principal securitized $ 3,008 $ 11,933 $ 2,558 $ 11,911 $ 1,404 $ 11,318
All cash flows during the period:
Proceeds from new securitizations(b) $ 3,022 $ 12,011 $ 2,569 $ 12,079 $ 1,410 $ 11,507
Servicing fees collected 528 3 557 4 576 5
Purchases of previously transferred financial assets
(or the underlying collateral)(c) 3—121 —294 —
Cash flows received on interests 407 597 179 578 156 325
(a) Excludes re-securitization transactions.
(b) Proceeds from residential mortgage securitizations were received in the form of securities. During 2015, $3.0 billion of residential mortgage
securitizations were received as securities and classified in level 2, and $59 million were classified in level 3 of the fair value hierarchy. During 2014, $2.4
billion of residential mortgage securitizations were received as securities and classified in level 2, and $185 million were classified in level 3 of the fair
value hierarchy. During 2013, $1.4 billion of residential mortgage securitizations were received as securities and classified in level 2. Proceeds from
commercial mortgage securitizations were received as securities and cash. During 2015, $12.0 billion of proceeds from commercial mortgage
securitizations were received as securities and classified in level 2, and $43 million of proceeds were classified in level 3 of the fair value hierarchy; and
zero of proceeds from commercial mortgage securitizations were received as cash. During 2014, $11.4 billion of proceeds from commercial mortgage
securitizations were received as securities and classified in level 2, and $130 million of proceeds were classified in level 3 of the fair value hierarchy: and
$568 million of proceeds from commercial mortgage securitizations were received as cash. During 2013, $11.3 billion of commercial mortgage
securitizations were classified in level 2 of the fair value hierarchy, and $207 million of proceeds from commercial mortgage securitizations were received
as cash.
(c) Includes cash paid by the Firm to reacquire assets from off–balance sheet, nonconsolidated entities – for example, loan repurchases due to representation
and warranties and servicer clean-up calls.
(d) Includes prime, Alt-A, subprime, and option ARMs. Excludes certain loan securitization transactions entered into with Ginnie Mae, Fannie Mae and Freddie
Mac.
(e) Key assumptions used to measure residential mortgage retained interests originated during the year included weighted-average life (in years) of 4.2, 5.9
and 3.9 for the years ended December 31, 2015, 2014 and 2013, respectively, and weighted-average discount rate of 2.9%, 3.4% and 2.5% for the
years ended December 31, 2015, 2014 and 2013, respectively. Key assumptions used to measure commercial and other retained interests originated
during the year included weighted-average life (in years) of 6.2, 6.5 and 8.3 for the years ended December 31, 2015, 2014, and 2013, respectively, and
weighted-average discount rate of 4.1%, 4.8% and 3.2% for the years ended December 31, 2015, 2014 and 2013, respectively.
(f) Includes commercial and student loan securitizations.
Loans and excess MSRs sold to U.S. government-
sponsored enterprises (“U.S. GSEs”), loans in
securitization transactions pursuant to Ginnie Mae
guidelines, and other third-party-sponsored
securitization entities
In addition to the amounts reported in the securitization
activity tables above, the Firm, in the normal course of
business, sells originated and purchased mortgage loans
and certain originated excess MSRs on a nonrecourse basis,
predominantly to U.S. GSEs. These loans and excess MSRs
are sold primarily for the purpose of securitization by the
U.S. GSEs, who provide certain guarantee provisions (e.g.,
credit enhancement of the loans). The Firm also sells loans
into securitization transactions pursuant to Ginnie Mae
guidelines; these loans are typically insured or guaranteed
by another U.S. government agency. The Firm does not
consolidate the securitization vehicles underlying these
transactions as it is not the primary beneficiary. For a
limited number of loan sales, the Firm is obligated to share
a portion of the credit risk associated with the sold loans