JPMorgan's Latest RMBS Backed by 7-Year ARMs

JPMorgan began marketing another $402 million of securities backed by residential mortgages this week, adding to its robust pipeline of fourth-quarter deals.

A pool of seven-year, hybrid adjustable-rate mortgages backs the latest deal, according to Fitch Ratings. Similar to the several deals the bank has issued in recent weeks, the pool consists of prime quality mortgages originated by First Republic Bank. The borrowers have strong credit profiles, with a weighted average credit score of 764; and low leverage as evidenced by a weighted average loan-to-value ratio of o 63.1%.

More than half of the loans pay interest only, which could result in periodic changes in a borrower's payment and exposes borrowers to payment reset risk. These loans were originated prior to January 2014 and are not subject to ability-to-repay rules.

There are 54 loans in this pool that were subject to the rule. Fitch stated in the report that the loans were designated qualified mortgages that benefit from a legal safe harbor.

The capital structure features $324.4 million of AAA rated bonds that have credit enhancement at 15%, $8.8 million of AA rated bonds that have credit enhancement at 4.95%, $6.6 million of A rated bonds with credit enhancement at 3.3%, $5.6 million of BBB rated bonds with credit enhancement at 1.9% and $3.2 million of BB rated bonds with credit enhancement at 1.15%. The notes are due November 2044.

There are also sell $4.6 million of unrated bonds due November 2044. Fitch noted in the presale report that, unlike recent RMBS deals it has rated; JPMorgan will not retain any of the credit risk associated with the transaction other than that associated with the reps and warranties. In recent transactions rated by Fitch, the sponsor typically retained the most subordinate classes at initial closing.

The deal is part of the fourth-quarter spurt of mortgage bond sales by JPMorgan. The bank broadcast plans in September to sell as much as $1 billion in prime, jumbo residential mortgage-backed securities through multiple issuances in the fourth quarter.

It has already reached that goal, having $1 billion including the initial September transaction, JPMMT 2014-IVR3 backed by $484 million of prime jumbo loans. The collateral pool is comprised of 551 of hybrid adjustable-rate mortgages with low LTVs and high credit scores. Approximately 23.8% of them pay interest only for the initial 10 years.

JPMorgan followed up with an early October transaction that issued $320 million of prime jumbo RMBS, dubbed JPMMT 2014-OAK4. The deal is backed by loans acquired through Five Oaks Investments. The pool consists of 30-year fixed-rate jumbo loans.

In late October the bank issued a $262 million prime jumbo RMBS, JPMMT 2014-5. The collateral pool consists of 373 15-year, fixed-rate mortgages with a weighted average CLTV of 59% and a 762 weighted average credit score.