MSRs Boost JPM's Mortgage Earnings

J.P. Morgan Chase said in a regulatory filing with the SEC in late March that it saw solid mortgage earnings of $1.4 billion in 2004, fueled by improved mortgage servicing results. But at the same time, the company said it expects to set aside more money for losses relating to home loans originated through wholesale channels this year.

Operating earnings for J.P. Morgan Chase's prime production and servicing division totaled $422 million last year, up $182 million from the year before. The company said in its filing that the increased reflected hedging results relating to its mortgage servicing rights.

"The increase in MSR risk management results was due in part to the absence of prior-year securities losses on repositioning of the risk management asset," the company said.

During 2005, J.P. Morgan Chase recorded $777 million in positive MSR valuation adjustments, which were partially offset by $494 million on risk management hedges.

In Chase's "consumer real estate lending" segment, which the operating results of consumer loans that are secured by real estate but held in the bank's portfolio, earnings in 2005 rose by $54 million to $935 million. The improvement was trimmed by a $140 million special provision relating to Hurricane Katrina and a loss on loans transferred to a held for sale account.

At the end of last year, J.P. Morgan Chase valued its third-party MSR portfolio on $467.5 billion of home loans at $6.5 billion, up from a valuation of $5.1 billion on a $430.9 billion portfolio one-year earlier.

J.P. Morgan Chase also had a retained mortgage portfolio totaling $128.7 billion.

J.P. Morgan Chase reported origination value of $182.8 billion in 2005, down slightly from 2004. Home-equity lending accounted for $54.1 billion of the total.

Offsetting the generally positive news from J.P. Morgan Chase's home and consumer real estate lending units last year was a warning that the provision for credit losses in 2006 is expected to be higher than last year, driven by "a more normal level of provisioning for credit losses in the wholesale businesses," the company said.

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