Value of JPMorgan Government-Backed REO Triples Since 2009
The value of JPMorgan Chase's (JPM) REO portfolio insured by US government agencies nearly tripled over the past year. In addition, the default rate of option ARMs not backed by the US government rose sharply from a year ago, according to a supplemental earnings report. While JPMorgan's primary Q210 financial report released Thursday does not delve into specifics regarding the bank's REO assets, a supplement report provides more detail. REO insured by the US government totaled $1.4bn in Q210 compared to $508m in Q209. The latest results are nearly double the total from Q110, $707m. In addition, JPMorgan said nonaccruing mortgages insured by US government agencies were up 140% from Q209, at $10.1bn in Q210 compared to $4.2bn one year ago. Nonaccruing mortgages are those that are late and no longer accruing interest. That volume is down, however, from $10.5bn in Q110, JPMorgan said. In addition to the government-backed REO and nonaccruing mortgages, JPMorgan said its total nonperforming assets — loans, credit cards, real estate and other assets that don't generate revenue — was valued at $18.2bn at quarter's end, up from $17.5bn in Q209, but down from $19bn in Q110. JPMorgan declined to disclose the gross number of REO properties in its inventory. But in JPMorgan's home loan portfolio — which includes home equity, prime and subprime mortgages and option adjustable-rate mortgages (ARMs) — the bank said it holds nearly $9.34bn in nonperforming mortgage assets, up 18% from Q209, but down 3% from Q110. That pool of nonperforming mortgages in Q210 includes: $4.65bn in prime mortgages, up 33% from Q209 and 2% from Q110 $3.12bn in subprime mortgages, up 12% from Q209, but down 6% from Q110 $409m in option ARMs, up 125% from Q209 and 18% from Q110 All nonperforming assets, including credit cards and home, auto and other loans accounted for 2.31% of the bank's overall consumer loan portfolio, up 4% from last year, but down 5% from Q110. A spokesperson for JPMorgan could not immediately respond to requests seeking clarification as to why the level of government-backed assets had grown so much. But a change in accounting rules implemented this year sheds more light on the banking giant's exposure to real estate and mortgage-related risk. At the beginning of 2010, new US accounting standards forced JPMorgan to adopt a new policy that required the bank to move assets from variable interest entities (VIEs) — a type of bank-administered investment tool that holds risk liability for assets like credit card and mortgage securities — onto the bank's balance sheets. In consolidating its mortgage, credit card and other consumer loan VIEs, JPMorgan added $87.7bn of assets and $92.2bn in liabilities to its balance sheet this year, including $3.5bn in mortgage securities and $3.7bn in liabilities. Write to Austin Kilgore. The author held no relevant investments.