Think the $1.9 billion "house" mortgage securitization that JPMorgan completed in April was big?

The next one is even bigger— $2.645 billion to be exact.

Chase Mortgage Trust 2016-2 is another transaction that does an end-run around Fannie Mae and Freddie Mac. Though private-label, meaning it is not guaranteed by the government, more than half of the loans used as collateral, or 55%, could have been sold to one of the government-sponsored enterprises. The remaining 45% are just as safe, but too large to qualify.

As with the April transaction, JPMorgan will hold on to the bulk of bonds to be issued; it is retaining the most senior tranches, and selling most of the riskier pieces to investors. The underlying assets would remain on JPMorgan's balance sheet, but investors would eat most of the losses if large numbers of borrowers fell behind on payments.

The transaction is just one way that large banks are responding to the rising cost of mortgage insurance provided by Fannie and Freddie, which still dominate the market for mortgage finance nearly a decade after the financial crisis. By selling bonds backed by conforming loans, JPMorgan is paying capital markets investors, rather than the GSEs, to assume the risk of default.

Like the April deal, this one relies on the Federal Deposit Insurance Corp.'s 2010 safe harbor rule, which isolates the loans from JPMorgan's creditors should the bank fail. That's 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.

All of the 7,361 loans used as collateral were originated either by Chase or one of its correspondents. All are 30-year fixed-rate mortgage loans seasoned roughly 13 months. The weighted average FICO score is 771, the weighted average loan-to-value ratio 77.6% and nearly 100% are owner occupied.

Moreover the collateral pool has what Fitch describes as "modest" 26.5% exposure to California, a high-cost market that tends to heavily represented in private-label securitizations, which since the financial crisis have been backed almost exclusively by jumbo loans.

Fitch has assigned a preliminary AAA to both the senior and super senior tranches, which benefit from 15% and 10.25% credit enhancement, respectively. In its presale report, the ratings agency notes that these levels are more than enough to offset the impact of expected losses on the collateral to senior noteholders. The additional credit enhancement is necessary because of structural features of the deal. For example, the servicer will not advance principal and interest to noteholders should borrowers miss payments. Also, fees to incent services are borne by all noteholders, and not just the junior noteholders.

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