JPMorgan is returning to a familiar structure as it again pools large-market prime jumbo mortgages for investors in collateralized residential mortgage loans.
JPMorgan Mortgage Trust 2016-5 is a transaction that features 455 home loans with a collected balance of $385 million. The loans are in expensive markets such as San Francisco and New York, issued to wealthy borrowers with not only superior credit scores (weighted average of 767), but ultra-low loan-to-value ratios (60.6%) and copious levels of cash with average liquid reserves of $1.76 million.
The credit quality levels help mitigate the collection of 100% adjustable-rate hybrid mortgages in the pools, as well as the fact nearly half do not meet qualified mortgage/safe harbor standards that protect lenders from certain borrower legal claims.
The deal is mostly entirely comprised of two classes of senior note structures — together, 94.25% of the pool's collateral — assigned an expected ‘AAA’ rating from Fitch Ratings.
The $171.3 million in Class 1-A-1 notes and $8.1 million in 1-A-2 bonds carry a slightly lower interest rate (2.51%) than the Class 2-A notes that include a 2-A-1 tranche of $175.5 million and 2-A-2 of $8.3 million (2.69%).
Both the super senior and supporting senior notes series have an initial hard target credit enhancement of 10%, and 5.75% subordination.
The pool is divided between two groups of prime 5/1, 7/1 and 10/1 adjustable-rate mortgages. The five-year ARMS will be directed to the super-senior 1-A classes, while the seven-year and 10-year loans will be assigned to the Class 2-A senior support pool. In this structure, the subordinate senior notes will absorb losses until a zero balance is achieved, before the super-senior bonds are affected.
Nearly 41% of the loans have 10-year interest-only features, which added a 1.9x probability of default penalty to the pool.
A large majority of the loans, 87.3%, were originated by First Republic Bank, a regularly featured lender in JPMMT transactions.
The pool is geographically divided into large segments of loans originated in California (43.8%) and New York 23%. Over 78% of the loans are located in San Francisco, New York, Boston, Los Angeles and San Jose. Fitch applied a penalty of 19 basis points to the lifetime default expectation of 1% due to the concentration.
Subordinate notes are shut out of receiving principal payments for five years.
Loans in the pool were also originated by PHH Home Loans, Primary Capital Mortgage, Bank of Oklahoma and Guaranteed Rate Inc.
The 2016-5 transaction is slightly larger than the prior 2016-4 deal with a $321.8 million pool balance, when JPMorgan was securitizing loans originated through retail channels of Quicken Loans, Caliber Home Loans and Flagstar Bank.
JPMorgan previously collateralized a First Republic loans in its second deal of 2016, in a $302.3 million transaction. In the 2016-2 transaction, all of the loans were First Republic originations.