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Goodwill and Mortgage Servicing Rights
 12 Months Ended
Dec. 31, 2017
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Mortgage Servicing Rights
Goodwill and Mortgage servicing rights
Goodwill
Goodwill is recorded upon completion of a business combination as the difference between the purchase price and the fair value of the net assets acquired. Subsequent to initial recognition, goodwill is not amortized but is tested for impairment during the fourth quarter of each fiscal year, or more often if events or circumstances, such as adverse changes in the business climate, indicate there may be impairment.
The goodwill associated with each business combination is allocated to the related reporting units, which are determined based on how the Firm’s businesses are managed and how they are reviewed by the Firm’s Operating Committee. The following table presents goodwill attributed to the business segments.
December 31, (in millions)
2017
2016
2015
Consumer & Community Banking
$
31,013

$
30,797

$
30,769

Corporate & Investment Bank
6,776

6,772

6,772

Commercial Banking
2,860

2,861

2,861

Asset & Wealth Management
6,858

6,858

6,923

Total goodwill
$
47,507

$
47,288

$
47,325


The following table presents changes in the carrying amount of goodwill.
Year ended December 31, (in millions)
2017
 
2016
 
2015
Balance at beginning of period
$
47,288

 
$
47,325

 
$
47,647

Changes during the period from:
 
 
 
 
 
Business combinations(a)
199

 
—

 
28

Dispositions(b)
—

 
(72
)
 
(160
)
Other(c)
20

 
35

 
(190
)
Balance at December 31,
$
47,507

 
$
47,288

 
$
47,325

(a)
For 2017, represents CCB goodwill in connection with an acquisition.
(b)
For 2016, represents AWM goodwill, which was disposed of as part of an AWM sales transaction. For 2015 includes $101 million of Private Equity goodwill, which was disposed of as part of the Private Equity sale.
(c)
Includes foreign currency translation adjustments and other tax-related adjustments.

Impairment testing
The Firm’s goodwill was not impaired at December 31, 2017, 2016, and 2015.
The goodwill impairment test is performed in two steps. In the first step, the current fair value of each reporting unit is compared with its carrying value, including goodwill and other intangible assets. If the fair value is in excess of the carrying value, then the reporting unit’s goodwill is considered to be not impaired. If the fair value is less than the carrying value, then a second step is performed. In the second step, the implied current fair value of the reporting unit’s goodwill is determined by comparing the fair value of the reporting unit (as determined in step one) to the fair value of the net assets of the reporting unit, as if the reporting unit were being acquired in a business combination. The resulting implied current fair value of goodwill is then compared with the carrying value of the reporting unit’s goodwill. If the carrying value of the goodwill exceeds its implied current fair value, then an impairment charge is recognized for the excess. If the carrying value of goodwill is less than its implied current fair value, then no goodwill impairment is recognized.
The Firm uses the reporting units’ allocated capital plus goodwill and other intangible assets capital as a proxy for the carrying values of equity for the reporting units in the goodwill impairment testing. Reporting unit equity is determined on a similar basis as the allocation of capital to the Firm’s lines of business, which takes into consideration the capital the business segment would require if it were operating independently, incorporating sufficient capital to address regulatory capital requirements (including Basel III) and capital levels for similarly rated peers. Proposed line of business equity levels are incorporated into the Firm’s annual budget process, which is reviewed by the Firm’s Board of Directors. Allocated capital is further reviewed on a periodic basis and updated as needed.
The primary method the Firm uses to estimate the fair value of its reporting units is the income approach. This approach projects cash flows for the forecast period and uses the perpetuity growth method to calculate terminal values. These cash flows and terminal values are then discounted using an appropriate discount rate. Projections of cash flows are based on the reporting units’ earnings forecasts which are reviewed with senior management of the Firm. The discount rate used for each reporting unit represents an estimate of the cost of equity for that reporting unit and is determined considering the Firm’s overall estimated cost of equity (estimated using the Capital Asset Pricing Model), as adjusted for the risk characteristics specific to each reporting unit (for example, for higher levels of risk or uncertainty associated with the business or management’s forecasts and assumptions). To assess the reasonableness of the discount rates used for each reporting unit management compares the discount rate to the estimated cost of equity for publicly traded institutions with similar businesses and risk characteristics. In addition, the weighted average cost of equity (aggregating the various reporting units) is compared with the Firms’ overall estimated cost of equity to ensure reasonableness.
The valuations derived from the discounted cash flow analysis are then compared with market-based trading and transaction multiples for relevant competitors. Trading and transaction comparables are used as general indicators to assess the general reasonableness of the estimated fair values, although precise conclusions generally cannot be drawn due to the differences that naturally exist between the Firm’s businesses and competitor institutions. Management also takes into consideration a comparison between the aggregate fair values of the Firm’s reporting units and JPMorgan Chase’s market capitalization. In evaluating this comparison, management considers several factors, including (i) a control premium that would exist in a market transaction, (ii) factors related to the level of execution risk that would exist at the firmwide level that do not exist at the reporting unit level and (iii) short-term market volatility and other factors that do not directly affect the value of individual reporting units.
Declines in business performance, increases in credit losses, increases in capital requirements, as well as deterioration in economic or market conditions, estimates of adverse regulatory or legislative changes or increases in the estimated market cost of equity, could cause the estimated fair values of the Firm’s reporting units or their associated goodwill to decline in the future, which could result in a material impairment charge to earnings in a future period related to some portion of the associated goodwill.
Mortgage servicing rights
MSRs represent the fair value of expected future cash flows for performing servicing activities for others. The fair value considers estimated future servicing fees and ancillary revenue, offset by estimated costs to service the loans, and generally declines over time as net servicing cash flows are received, effectively amortizing the MSR asset against contractual servicing and ancillary fee income. MSRs are either purchased from third parties or recognized upon sale or securitization of mortgage loans if servicing is retained.
As permitted by U.S. GAAP, the Firm has elected to account for its MSRs at fair value. The Firm treats its MSRs as a single class of servicing assets based on the availability of market inputs used to measure the fair value of its MSR asset and its treatment of MSRs as one aggregate pool for risk management purposes. The Firm estimates the fair value of MSRs using an option-adjusted spread (“OAS”) model, which projects MSR cash flows over multiple interest rate scenarios in conjunction with the Firm’s prepayment model, and then discounts these cash flows at risk-adjusted rates. The model considers portfolio characteristics, contractually specified servicing fees, prepayment assumptions, delinquency rates, costs to service, late charges and other ancillary revenue, and other economic factors. The Firm compares fair value estimates and assumptions to observable market data where available, and also considers recent market activity and actual portfolio experience.
The fair value of MSRs is sensitive to changes in interest rates, including their effect on prepayment speeds. MSRs typically decrease in value when interest rates decline because declining interest rates tend to increase prepayments and therefore reduce the expected life of the net servicing cash flows that comprise the MSR asset. Conversely, securities (e.g., mortgage-backed securities), principal-only certificates and certain derivatives (i.e., those for which the Firm receives fixed-rate interest payments) increase in value when interest rates decline. JPMorgan Chase uses combinations of derivatives and securities to manage the risk of changes in the fair value of MSRs. The intent is to offset any interest-rate related changes in the fair value of MSRs with changes in the fair value of the related risk management instruments.

The following table summarizes MSR activity for the years ended December 31, 2017, 2016 and 2015.
As of or for the year ended December 31, (in millions, except where otherwise noted)
2017

 
2016

 
2015

 
Fair value at beginning of period
$
6,096

 
$
6,608

 
$
7,436

 
MSR activity:
 
 
 
 
 
 
Originations of MSRs
1,103

 
679

 
550

 
Purchase of MSRs
—

 
—

 
435

 
Disposition of MSRs(a)
(140
)
 
(109
)
 
(486
)
 
Net additions
963

 
570

 
499

 
 
 
 
 
 
 
 
Changes due to collection/realization of expected cash flows
(797
)
 
(919
)
 
(922
)
 
 
 
 
 
 
 
 
Changes in valuation due to inputs and assumptions:
 
 
 
 
 
 
Changes due to market interest rates and other(b)
(202
)
 
(72
)
 
(160
)
 
Changes in valuation due to other inputs and assumptions:
 
 
 
 
 
 
Projected cash flows (e.g., cost to service)
(102
)
 
(35
)
 
(112
)
 
Discount rates
(19
)
 
7

 
(10
)
 
Prepayment model changes and other(c)
91

 
(63
)
 
(123
)
 
Total changes in valuation due to other inputs and assumptions
(30
)
 
(91
)
 
(245
)
 
Total changes in valuation due to inputs and assumptions
(232
)
 
(163
)
 
(405
)
 
Fair value at December 31,
$
6,030

 
$
6,096

 
$
6,608

 
Change in unrealized gains/(losses) included in income related to MSRs held at December 31,
$
(232
)
 
$
(163
)
 
$
(405
)
 
Contractual service fees, late fees and other ancillary fees included in income
1,886

 
2,124

 
2,533

 
Third-party mortgage loans serviced at December 31, (in billions)
555.0

 
593.3

 
677.0

 
Servicer advances, net of an allowance for uncollectible amounts, at December 31, (in billions)(d)
4.0

 
4.7

 
6.5

 
(a)
Includes excess MSRs transferred to agency-sponsored trusts in exchange for stripped mortgage backed securities (“SMBS”). In each transaction, a portion of the SMBS was acquired by third parties at the transaction date; the Firm acquired the remaining balance of those SMBS as trading securities.
(b)
Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and expected prepayments.
(c)
Represents changes in prepayments other than those attributable to changes in market interest rates.
(d)
Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest, taxes and insurance), which will generally be reimbursed within a short period of time after the advance from future cash flows from the trust or the underlying loans. The Firm’s credit risk associated with these servicer advances is minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right to stop payment to investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if they were not made in accordance with applicable rules and agreements.
The following table presents the components of mortgage fees and related income (including the impact of MSR risk management activities) for the years ended December 31, 2017, 2016 and 2015.
Year ended December 31,
(in millions)
2017
 
2016
 
2015
CCB mortgage fees and related income
 
 
 
 
 
Net production revenue
$
636

 
$
853

 
$
769

 
 
 
 
 
 
Net mortgage servicing revenue:
 
 
 
 
 

Operating revenue:
 
 
 
 
 

Loan servicing revenue
2,014

 
2,336

 
2,776

Changes in MSR asset fair value due to collection/realization of expected cash flows
(795
)
 
(916
)
 
(917
)
Total operating revenue
1,219

 
1,420

 
1,859

Risk management:
 
 
 
 
 

Changes in MSR asset fair value
due to market interest rates and other(a)
(202
)
 
(72
)
 
(160
)
Other changes in MSR asset fair value due to other inputs and assumptions in model(b)
(30
)
 
(91
)
 
(245
)
Change in derivative fair value and other
(10
)
 
380

 
288

Total risk management
(242
)
 
217

 
(117
)
Total net mortgage servicing revenue
977

 
1,637

 
1,742

 
 
 
 
 
 
Total CCB mortgage fees and related income
1,613

 
2,490

 
2,511

 
 
 
 
 
 
All other
3

 
1

 
2

Mortgage fees and related income
$
1,616

 
$
2,491

 
$
2,513

(a)
Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and expected prepayments.
(b)
Represents the aggregate impact of changes in model inputs and assumptions such as projected cash flows (e.g., cost to service), discount rates and changes in prepayments other than those attributable to changes in market interest rates (e.g., changes in prepayments due to changes in home prices).
The table below outlines the key economic assumptions used to determine the fair value of the Firm’s MSRs at December 31, 2017 and 2016, and outlines the sensitivities of those fair values to immediate adverse changes in those assumptions, as defined below.
December 31,
(in millions, except rates)
2017
 
2016
Weighted-average prepayment speed assumption (“CPR”)
9.35
%
 
9.41
%
Impact on fair value of 10% adverse change
$
(221
)
 
$
(231
)
Impact on fair value of 20% adverse change
(427
)
 
(445
)
Weighted-average option adjusted spread
9.04
%
 
8.55
%
Impact on fair value of 100 basis points adverse change
$
(250
)
 
$
(248
)
Impact on fair value of 200 basis points adverse change
(481
)
 
(477
)
CPR: Constant prepayment rate.
Changes in fair value based on variation in assumptions generally cannot be easily extrapolated, because the relationship of the change in the assumptions to the change in fair value are often highly interrelated and may not be linear. In this table, the effect that a change in a particular assumption may have on the fair value is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which would either magnify or counteract the impact of the initial change.