JPMorgan's Next RMBS Looks a Lot More Familiar

JPMorgan Chase's next residential mortgage securitization looks a lot like the six deals it completed in 2015: it is backed by jumbo loans to high-quality borrowers that the bank acquired from other originators.

JPMorgan Mortgage Trust 2016-1 will issue $412 million of notes with preliminary ratings from Fitch Ratings. The senior classes of notes, which benefit from 15% credit enhancement, are rated AAA.

By comparison, the bank's previous RMBS, completed in April, weighted in at $1.9 billion, and was backed by a mix of loans that conformed to the underwriting standards of Fannie Mae and Freddie Mac, and so could have been sold to either of the government-sponsored enterprises. The other third were just as safe, but too large to qualify as conforming.

The April deal, Chase Mortgage Trust 2016-1, was notable for several other reasons. It was the bank's first "house" deal, since the financial crisis — one backed entirely by its own mortgages. It was also the first transaction to rely on the Federal Deposit Insurance Corp.'s 2010 safe harbor rule, which would isolate the loans from JPMorgan's creditors if the bank failed. That was important because of a 2009 change in accounting rules; loans originated and serviced by banks are now treated as though they are still on a company's books, even after they are sold to a special purpose vehicle for securitization.

By comparison, JPMorgan acquired the collateral for JPMMT 2016-1 from numerous other lenders. The top five originators are New Penn Financial, Primary Capital Advisors, HomeStreet Bank, PHH Home Loans and EverBank, which together account for 64.7% of the collateral.

As with most private-label deals, the pool's primary concentration risk is in California, where approximately 30% of the collateral is located. Approximately 40% of the pool is located in the top five regions in the subject pool (Atlanta, San Francisco, Los Angeles, Seattle and New York). However, these concentrations show significant improvement over many of the JPMMT deals rated by Fitch in 2015, in which over 50% of the pool was concentrated in California and over 80% in the top five regions. As a result, the ratings agency did not apply a geographic concentration penalty in assessing the deal.

Another risk, according to Fitch, is the fact that there are 38 loans with application dates after Oct. 3, 2016 and, therefore, are subject to the TILA-RESPA integrated disclosure rules. Compliance with the rule, which is meant to help consumers understand the total costs of a home loan, has proven difficult, and some kinds of violations create assignee liability, meaning mortgage bond holders could be subject to losses on loans should borrowers successfully sue.

However, Fitch said that all of the TRID loans in JPMMT 2016-1 with exceptions received sufficient updated documentation in order to clear the exceptions within the allowable time frame. Therefore, all 38 loans received final grades of B.

Through its conduit program, JPMorgan has been a leading issuer of private-label mortgage bonds since the financial crisis, completing 15 deals since 2013.