JPMorgan Chase & Co. is selling securities tied to almost $1 billion of mortgages in the latest version of bonds that allow home-loan giant Fannie Mae to share risks with debt investors.
The deal, called JPMorgan Madison Avenue Securities Trust, is similar to debt that government-backed Fannie Mae began issuing last year to transfer some of its potential losses to bond buyers, according to a presale report by Fitch Ratings. The credit grader is assigning a BBB- rating to a $19.8 million portion of the transaction, which also has a more-junior ranked $27.2 million class.
The offering differs from Fannie Mae "Connecticut Avenue Securities" deals in part because the bonds are being issued by a special-purpose trust, rather than the company, Fitch said. The cash raised from investors will be placed into an account that gets depleted as borrowers default. JPMorgan, which made all the mortgages involved from June through August, later placed them into other separate bonds guaranteed by Fannie Mae.
Fannie Mae and competitor Freddie Mac have sold about $11 billion of the earlier versions of their risk-sharing notes since July 2013, along with new types of bulk insurance deals, according to data compiled by Bloomberg. The companies' regulator, which is encouraging the transactions to reduce the dangers for taxpayers that back the companies, has asked the firms to test a variety of types of deals.
"One of the key things that's not getting enough attention at the GSEs is the quantity of credit risk that they are starting to lay off," American Capital Agency Corp. President Gary Kain said today on an earnings call, referring to Fannie Mae and Freddie Mac as government-sponsored enterprises. Kain previously managed Freddie Mac’s investments.
Brian Marchiony, a spokesman for New York-based JPMorgan, declined to immediately comment, as did Andrew Wilson, a spokesman for Washington-based Fannie Mae.
The loans involved in the latest deal are "high-quality" 30-year, fully documented mortgages, with loan-to-value ratios averaging 76% and mean borrower credit scores of 750, Fitch said. Unlike its earlier deals, Fannie Mae won’t be at risk of bearing losses on any of the initial defaults in the loan pool, facing damage only after recouping as much as 4.75% of the starting balances from bond buyers, the credit grader said.
