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Legacy MBS issues provide greater certainty for investors

Settlements are just a drop in the bucket for shareholders

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As JPMorgan Chase (JPM) CEO Jamie Dimon carries on with his 'business as usual' attitude, the leader's eagerness to end legacy mortgage-bond issues could have a deep impact on investors.

The rumored mortgage-backed securities claims against the mega bank have some experts believing these settlements are just a drop in the bucket for shareholders — leaving the sector mostly unscathed.

"Bottom line is Jamie isn’t going to lose his job over this," said FBR Capital Markets analyst Paul Miller. "He’s being penalized for being a good citizen."

Over the weekend, rumors surfaced that JPMorgan was facing a multi-billion dollar settlement with the Federal Housing Finance Agency.

Currently, the banking institution is in talks to pay the Department of Justice billion of dollars to help resolve a series of mortgage-bond claims, with the total value of new government claims reaching $13 billion.

HousingWire reached out to the FHFA, the DOJ and JPMorgan, but all three declined to comment.

As a result, Miller isn’t convinced a conclusion about the banking giant's future can be made until further details are presented — meaning, shareholders in the company aren’t backing out of the stock just yet.

Regardless of the details, industry analysts believe these settlements could have a major impact on investors.

For instance, the claims provide a certain amount of compensation to the bondholder, while also offering robust comparable data for the handling of future deals, explained Odeon Capital senior analyst Ankur Makhija.

The putback negotiation process is still relatively complicated when it comes to all the mechanics of a settlement since much of that information is confidential, the Odeon Capital analyst suggested.

However, the accumulation of data provides far more certainty to the putback area of MBS than seen over the past two years — the payouts are more certain, but far from transparent, Makhija stated.

This is important because putbacks are extremely influential on mortgage-bond pricing, which has allowed these trusts to receive additional cash flow over time -- more than the market anticipated, the Odeon senior analyst concluded. 

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