JPMorgan Chase Bank is in the market with a mortgage risk-sharing deal that is analogous to those issued by Fannie Mae under the label Connecticut Avenue Securities (CAS), according to a pre-sale report from Fitch Ratings.
Called J.P. Morgan Madison Avenue Securities Trust, Series 2014-1, the transaction tracks the performance of a $989-million reference pool of agency mortgages originated by the bank. The loans in the pool are being delivered to Fannie Mae which will then bundle them into a Fannie-guaranteed MBS.
JPMorgan is required to buy back any loans that don’t pass muster with the agency.
The point of the deal is the same as with a standard CAS transaction: transfer credit risk from Fannie to private investors.
Fitch gave a $19.78 million M-1 tranche a preliminary rating of BBB-.’ The coupon on the tranche is 225 basis points over one month Libor. There is also an unrated M-2 tranche for $27.2 million with a coupon of 425 basis points over.
There are differences, however, with the CAS deals. Among them, Fitch said, was “the issuance of bonds from a special-purpose trust whose security interest consists of the cash collateral account, an interest account, a retained interest-only (IO) strip and a reserve account.”
The collateral account will make payments to Fannie for loans that become 180 days or more delinquent or other defined recourse events take place.
The notes will be benchmarked against Libor.
Boding well for the deal’s creditworthiness is the fact that the collateral consists of prime 30-year loans to borrowers with strong credit profiles and low indebtedness.