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JPMorgan reverts to fixed-rate conforming for next RMBS

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JPMorgan Chase is reverting to fixed-rate, conforming loans for its next residential mortgage securitization.

The deal, JPMorgan Mortgage Trust 2017-6, is backed by 1,443 loans with a total principal balance of $883.8 million, according to ratings agency DBRS. All of the loans have 30-year terms and pay a fixed rate of interest. Just over half (55.2%) were eligible to be purchased by Fannie Mae or Freddie Mac, but JPMorgan Chase opted to securitize them in a private-label transaction instead.

By comparison, the bank’s previous residential mortgage bond offering was backed entirely by loans too large to be purchased by Fannie or Freddie that paid adjustable rates of interest, after an initial period of either five, seven or 10 years.

In the latest deal, JPMorgan itself contributed most of the conforming loans (48.6% of the total balance); the remainder came from loanDepot.com, which contributed 12.5% of the total collateral. Other originators included United Shore Financial Services (USFS, 8.3%), Caliber Home Loans Inc. (6.8%) and various other originators, each comprising less than 5% of the mortgage loans. Approximately 2.3% of the loans came from MAXEX, which in turn purchased them from various originators.

The loans were underwritten to borrowers with strong credit; the weighted average FICO is 761, virtually unchanged from JPMorgan’s previous several deals. Nearly all of the loans fully document borrower income and assets. Moreover, all are secured by borrower occupied residences (96% of them primary residences); there are no investment properties in the pool — an important credit consideration, since borrowers are generally less likely to default on their own residences.

However, some of the originators have a limited history in prime jumbo securitizations, or may potentially experience financial stress that could result in the inability to fulfill repurchase obligations as a result of breaches of loan representations and warranties, according to DBRS.

Moreover, some of the servicers could face difficulty fulfilling their obligation to advance delinquent principal and interest payments in the future. A JPMorgan subsidiary, JPMCB, services nearly half of the collateral (48.6%), followed by New Penn Financial subsidiary Shellpoint Mortgage Servicing (31.9%) and Cenlar FSB (12.5%); the rest are served by various other servicers, each comprising less than 5% of the collateral.

DBRS expects to assign an AAA to 14 classes of senior notes to be issued in the transaction, some of which benefit from 6% credit support and some of which benefit from 12% credit support.

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RMBS Fannie Mae Freddie Mac JPMorgan Chase