An Insider’s Look Into How Secondary Marketing Evaluates LOs

In this webinar we’ll explore the long-term financial impacts of renegotiations, extensions and fallouts, plus basic guidelines to be viewed as a professional by your secondary marketing department

HousingWire Annual Virtual Summit

Sessions from HousingWire Annual 2021 are going to be virtually streamed on October 25. Register now for FREE to tune into what housing industry leaders had to say this year!

How servicers can access timely, accurate data insights

Learn how to navigate the challenges in today’s market – for example, the need for ongoing, on-demand access to near-real-time data and the ability to access those data insights in a timely and accurate manner.

Steve Murray on new brokerage models, CFPB crackdowns

Today’s HousingWire Daily features a discussion on the emergence of a new brokerage model and the validity behind the concerns against institutional investors.

Investments

JPMorgan launching massive ARM-only jumbo RMBS

$940.1 million offering receives AAA ratings

After exploring various securitzation structures throughout 2014, JPMorgan Chase & Co. (JPM) is kicking off its 2015 in a big way, prepping a massive residential mortgage-backed securitization backed entirely by adjustable-rate mortgages.

J.P. Morgan Mortgage Trust 2015-1 is backed by 913 adjustable-rate mortgages with a total balance of $940.1 million. The underlying loans carry an average loan balance of $1,029,642, according to a presale report from Fitch Ratings.

JPMMT 2015-1 is more than twice as large as JPMorgan’s last ARM-only securitization of 2014, J.P. Morgan Mortgage Trust 2014-IVR6, which was backed by a pool of 397 loans with an aggregate loan balance of $402.8 million.

According to Fitch Ratings’ presale report, all of the loans in JPMMT 2015-1 are five-year ARMs, but 73% of the loans have an interest-only period of 10 years. Fitch notes the borrowers’ future payment resets as a concern of the deal.

“ARM loans expose borrowers to payment reset risk,” Fitch noted. “Therefore, all else being equal, ARM and IO products are assigned higher probability of default in Fitch’s prime loss model, compared with fully amortizing, fixed-rate loans. Fitch applied a probability of default penalty of approximately 2.02x to the loans with IO features and 1.95x to the loans without the feature.”

On the other hand, the borrowers have strong credit profiles, low leverage and substantial liquid reserves, which provides protection against defaults, Fitch said.

“The majority of borrowers in this pool are high net worth individuals with significant liquid assets,” Fitch said. “Borrowers with significant liquid reserves are generally better positioned to withstand a temporary income disruption and have a lower risk of default. Approximately 48.7% of borrowers have reserve amounts greater than their mortgage loan balance. The weighted average reserve-to-loan ratio is roughly 262%. The WA annual income is approximately $937,195 for borrowers in this pool.”

According to Fitch’s report, the underlying borrowers carry weighted average liquid reserves of $2,731,108.

Fitch awarded AAA ratings to the largest of the offering’s tranches, citing the offerings 15% credit enhancement as a positive.

“The CE levels reflect the very strong credit attributes of the pool,” Fitch said. “Borrowers in the pool have significant equity in their property as reflected in a weighted average original combined loan-to-value of 62.6%.”

The weighted average original FICO score of the underlying borrowers is 759.

Also in the offering’s favor is the mortgage originator, Fitch said. First Republic Bank originated all of the loans, and in Fitch’s opinion, FRB is an “above-average originator.” Fitch also noted all loans in the pool were subjected to a full due diligence review, which showed “sound” underwriting practices.

As with most jumbo securitizations, the largest section of the underlying loans is located in California. But in this case, two metro areas (only one of which is in California) make up more than 63% of the underlying loans.

According to Fitch’s data, nearly 36% of the loans are located in the San Francisco-Oakland-Fremont, California area. Those 360 loans carry an aggregate principal balance of $337.88 million.

Second on the list of metro areas is New York-Northern New Jersey-Long Island, New York-New Jersey-Pennsylvania, which boasts 27.2% of the loans. Those 191 loans carry an aggregate principal balance of $255.74 million.

Also of concern is the deal’s high investor property concentration. According to Fitch’s data, investor properties account for approximately 14.8% of the mortgage pool.

“Investment properties exhibit a higher likelihood of default than owner-occupied primary home properties,” Fitch said. “Fitch attributes the higher default rates to the effect of speculative investments and the high risk nature of rental properties and applies a higher PD than for an owner-occupied loan. On average, the PD is 60% higher. Fitch took into account that all of these loans were originated by FRB, which Fitch considers to have an above-average origination platform. These investor property loans have strong credit characteristics with a low weighted average CLTV of 62%. The weighted average original FICO is 761 and weighted average debt-to-income ratio is 25.8%.”

Most Popular Articles

FHFA to make desktop appraisals permanent

Desktop appraisals, a temporary flexibility implemented in March 2020 amid lockdowns and social distancing, will become permanent, the FHFA said today.

Oct 18, 2021 By
3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please