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JPMorgan seeks to price first SOFR-referenced prime-loan MBS

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JPMorgan is marketing the first prime residential mortgage securitization that will reference some of the AAA-rated term notes to the fledgling Secured Overnight Financing Rate published by the New York Fed.

According to ratings agency presale reports, three Class A note tranches of pass-through mortgage certificates (as well an interest-only tranche) can reference SOFR as a benchmark rate in the new $342.2 million JPMorgan Mortgage Trust (JPMTT) 2020-8, should they be lower than the weighted average coupon of the collateral pool after applying a basis-point spread.

A term-SOFR rate will be used first according to a benchmark decision waterfall published by the ratings agencies, but the deal could use a compounded SOFR index of prior daily rates.

The deal will include no bonds tied to the Libor rate expected to cease publication at the end of 2021 by U.K. regulatory body the Financial Conduct Authority. The exclusion of Libor means the deal sponsor does not require any so-called fallback plans to replace the benchmark after Libor is phased out.

SOFR is recommended by the New York Fed’s Alternative Reference Rates Committee as a preferred replacement rate for Libor for many securitization and derivatives contracts, although the ARRC has yet to introduce a term-based SOFR rate with daily published overnight transaction rates.

The floating/inverse floating rate tranches using SOFR are each senior subordinate offerings: a $33.34 million Class A-9-B tranche, a $34.41 million Class A-11 tranche and an interest-only tranche tied to the A-11 notes.

Most other notes in the offering are fixed-rate certificates, including the $160.57 million Class A-6-A notes that ranks highest in payment priority is expected to have a fixed-interest rate of 2.5%.

“JPMMT 2020-8 is the first prime residential mortgage-backed security transaction where the coupon rates for certain certificates are based on the Secured Overnight Financing Rate whereas the coupon rates for prior transactions were based on Libor,” according to DBRS Morningstar’s report.

All of the certificates are backed by 403 loans with a total balance of about $342.17 million. All of the loans are prime quality fixed-rate mortgages (with a borrower weighted-average FICO of 768) that are from various mortgage originators, and are serviced by JPMorgan Chase Bank among various other servicers, according to presale reports.

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SOFR MBS Federal Reserve Bank of New York
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