JP Morgan Queues Up $483M RMBS; More to Come?

Right on cue, J.P. Morgan has launched a $483.5 million offering of residential mortgage-backed securities.

The deal, dubbed, J.P. Morgan Mortgage Trust 2014-IVR3, is backed by jumbo loans to ultra-safe borrowers, according to a presale report from Kroll Bond Ratings. However, the collateral includes some riskier types of loans, including extremely large loans and loans that pay only interest for a period of time. Like most private-label deals, the collateral is also geographically concentrated in areas of the country where housing prices are high.

Kroll has assigned a preliminary ‘AAA’ to three classes of senior notes totaling $411 million.

JP Morgan had telegraphed that it would sell as much as $1 billion of RMBS through multiple issuances by year’s end, a significantly boost for a market that has seen just $4.6 billion so far this year, less than a third of the 2013 total.

The credit quality of the borrowers in JPMMT 2014-IVR3 is strong, as evidenced by weighted average original and current credit scores of 766 and 765. The borrowers also have significant equity in their property, as demonstrated by the pool’s weighted average loan-to-value ratio of 67.7%.

Unlike most recent private-label deals, however, JPMMT 2014-IVR3 consists entirely of hybrid adjustable-rate mortgages (ARMs), and approximately 23.8% of them pay interesst only for the initial 10 years. Interest-only loans are riskier than loans that amortize over their entire term; should the borrower default, there will be a higher unpaid balance.

By comparison, most recent deals have been backed primarily by fixed-rate loans that amortize over a period of 15 or 30 years. 

Also, the pool of collateral backing JPMMT 2014-IVR3 has 18 loans with current balances greater than $2 million; three of which are above $3 million and make up 2.1% of the pool. The largest loan is $3.5 million, which represents approximately 0.72 % of the mortgage pool.

In one aspect, JP Morgan is not breaking any new ground: none of the loans are at risk of litigation from borrowers who cannot afford their payments. Most of the loans, 81.5%, are not subject to new ability-to-repay rules, either because they were originated prior to Jan. 10 or because they finance investment properties. The remaining 18% are qualified mortgages that fall under a safe harbor from liability under ability-to-repay rules.