JP Morgan is offering the capital markets $349.2 million in residential mortgage-backed securities, from a pool of hybrid adjustable-rate mortgage loans as collateral.
The JP Morgan Mortgage Trust 2026-HYB1 will use a modified sequential structure to repay noteholders, instead of the more common senior-subordinate, shifting interest structure in rated deals, according to Fitch Ratings analysts.
While the underlying mortgages have a hybrid interest structure, in which all loans initially had a period of fixed rates between 60 and 120 months at origination, none of the 244 loans in the pool are interest-only, Fitch said.
Further, mezzanine and subordinate noteholders will be shut out from receiving principal payments while principal collections are distributed to the class A notes equally until their balances are reduced to zero, Fitch said.
The deal will issue the debt through eight tranches of notes, classes A, M and B, according to Fitch.
All the notes have a final scheduled maturity date of August 2056, with credit enhancements on the most senior A1A and A1B classes of 15.00% and 8.25%, respectively, Fitch said. The A2 and A3 classes benefit from credit enhancement levels of 6.40% and 2.80%, respectively.
Throughout the rest of the deal the M1 through B2 tranches benefit from credit enhancement levels ranging from 1.20% through 0.35%, Fitch analysts said.
The deal structure includes two performance triggers to ensure cash flow to the notes—delinquency and cumulative loss, according to Fitch. The delinquency triggers are in place for the life of the transaction. If delinquency rates exceed three pre-set percentages corresponding to three repayment windows, the trigger event will occur, and that will change the principal waterfall from a pro-rata to a sequential structure.
Similarly, if cumulative losses are breached, the repayment structure will change from pro-rata to sequential, the rating agency said.
The notes also benefit from excess spread of 0.81%, Fitch said.
Borrowers are of prime quality with a weighted average (WA) FICO score of 766, and an original loan-to-value (LTV) ratio of 72.5%.
Fitch assigns ratings of AAA to classes A1A and A1B; AA- to A2; A- to A3; BBB- to M1; and BB- and B- to classes B1 and B2.
