JPMorgan Chase Bank has returned to the market with a second mortgage risk-sharing deal that is similar to those issued by Fannie Mae under the label Connecticut Avenue Securities (CAS), according to a pre-sale report from Fitch Ratings.

The deal, called J.P. Morgan L Street Securities, Series 2015-CH1, references a $1.96 billion pool of JPMorgan Chase originated mortgage loans that will secure Fannie Mae-guaranteed MBS.  

The collateral pool, which is nearly double the size of the sponsor’s inaugural risk share deal issued in late October 2014, consists of prime-quality, 30-year, fully amortizing and fully documented fixed-rate mortgages to borrowers with strong credit profiles and low leverage.

Borrowers in the current pool have invested less equity in the property with a weighted average LTV of 82.9% compared to a WA LTV of 76.5% in J.P. Morgan Madison Avenue Securities Trust, Series 2014-1 pool.  

JPMorgan is required to buy back any mortgage loans that don’t meet Fannie Mae’s selling guide or other agreements.

The point of the deal is the same as with a standard CAS transaction: transfer credit risk from Fannie to private investors.

There are several key differences between this transaction and CAS, including, most notably, the issuance of bonds from a special-purpose trust whose security interest consists of the cash collateral account (CCA), an interest account, a retained interest-only (IO) strip and a reserve account, all of which will be used to pay principal and interest on the notes.Unlike the CAS transactions where Fannie Mae retains the first loss class and a vertical slice of the class M securities, Fannie Mae will only absorb losses once the 4.75% protection provided by the class M securities is depleted.

Fitch assigned preliminary ratings of ‘BBB-’ to $36.4 million M-1 tranche a preliminary rating of ‘BBB-.’ The sponsor is also marketing $57 million of unrated M-2 notes.

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