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JPMorgan wades into investor-owned properties for next $338.8M prime RMBS

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JPMorgan is pooling it’s first-ever securitization of prime residential investor property loans, according to a presale report from Kroll Bond Rating Agency.

The JPMorgan Mortgage Trust 2019-1 pools together 919 residential mortgages with a principal collateral balance of $338.8 million. All of the mortgages are investor loans purchased by JPMorgan Mortgage Acquisition Corp.

The loans were underwritten to prime jumbo guidelines with average balances of $368,705. The trust series is “predominately” backed by non-QM loans that are exempt from federal ability-to-repay and truth-in-lending underwriting rules because of their “business-purpose” status, Kroll’s report stated.

Kroll’s report stated that while the mostly 30-year loans were partially underwritten to borrower credit attributes like credit scores and debt-to-income ratios, the agency took consideration rental market characteristics (like vacancy rates and market-rent trends) and a borrower’s capacity to manage multiple properties when rating the deal.

The loans average 5.5 years in age with 5.32% coupons. More than 47% of the properties are concentrated in California. Borrowers’ weighted-average income is $261,783, with liquid reserves of $475,508 and monthly free cash flow of $12,563, the report stated.

The concentration of investor properties in the pool adds higher risk to the transaction, compared to owner-occupied RMBS transactions, but the prime-quality of the investor borrowers and the low loan-to-value ratio of the collateral (a weighted average 65.9%) “provide a safeguard against potential losses in the event of default and home price declines,” the report stated.

The capital stack involves 15 note tranches, including six tranches of “super senior” notes with preliminary Kroll ratings of AAA and 20.1% credit enhancement support. Three other senior note tranches also have AAA ratings, even though they rank lower in note payment priority. Five classes of rated subordinate Class B notes range from AA to B from Kroll, while a sixth Class B tranche is unrated.

Kroll has expected losses of 7.8% on the senior-senior and senior notes.

It is the fifth transaction from the JPMorgan residential mortgage trust this year, although the four previous deals on the shelf in 2019 were mostly pools of owner-occupied prime jumbo loans purchased by JPMMAC. Nearly two-thirds of the loans were acquired from JPMorgan Chase Bank or AmeriHome Mortgage Co. The acquired loans also included originations from Caliber Home Mortgage and Guaranteed Rate Inc.

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RMBS prime jumbo RMBS Underwriting J.P. Morgan Securities JPMorgan Chase
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