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Investments

JP Morgan prepares massive mortgage bond deal

Nearly $2B in credit risk being sold

Wall street investment bank JP Morgan is putting together a massive residential mortgage-backed securities deal for the private market, according to Emily Glazer of The Wall Street Journal.

According to the article, the deal is worth $1.9 billion in credit risk, all from JPM-originated mortgages.

Glazer writes the "deal is J.P. Morgan’s first since the financial crisis involving mortgages entirely owned by the bank," and that the securitization is "an attempt to revive a debt market that has been largely left to the government since the financial crises."

This is true, in part.

The secondary market continues to be dominated wholly by issuance from Ginnie Mae, Fannie Mae and Freddie Mac.

But, will it actually "revive" the debt market?

No, not even close.

According to the Urban Institute, the market is only a shadow of its former self.

The private-label securitization market pales in comparison to its prior demand  — so much so that new prime securitization was just $12.1 billion in 2015; less than 9% of the $142 billion in 2001, according to a blog on the topic.

Further, the private-label securitization of newly prime, Alt-A, and subprime mortgages totaled $13.7 billion in 2015, versus $240.6 billion in 2001.

Still, if true, the deal would be a credit to JPM.

From the Urban Institute:

The failure to restart the PLS market could have a much deeper and more problematic impact should policymakers ultimately decide to pull back on the government’s role in the market, as many housing policy reformers have proposed. If this occurs, and banks do not step up, creditworthy borrowers with conforming loans will face both higher rates and credit availability issues.

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3d rendering of a row of luxury townhouses along a street

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