The Real Deal New York

JPMorgan getting back in the RMBS game

New securities would be bank's first “house transaction” since the financial crisis

March 16, 2016 03:50PM

Jamie Dimon

Jamie Dimon (credit: Dudek1337 via Wikipedia)

JPMorgan Chase is dipping back into the mortgage-backed securities market in the banking giant’s first “house transaction” since the financial crisis.

JPMorgan is expected to price a new residential mortgage-backed securities deal, which would pass along most of the credit risk on $1.9 billion in mortgages owned by the bank, over the next two weeks. JPMorgan would hold 90 percent of the deal, keeping the most senior tranches, while selling off riskier pieces to investors.

The deal would be JPMorgan’s first “house transaction,” entirely backed by mortgages it owns, since the financial crisis, according to the Wall Street Journal. The pool backing the securities includes a mix of more than 6,000 mortgages, around 75 percent of which conform with Fannie Mae and Freddie Mac underwriting standards.

While banks issued trillions in bonds backed by home loans in the years leading up to the financial crisis in 2008, the mortgage-backed securities market has been largely left to government-sponsored entities like Fannie and Freddie in the years since.

Financial institutions issued nearly $62 billion in private mortgage bonds last year, up from more than $51 billion in 2014 but a fraction of the $1.2 trillion issued in 2005, at the peak of the housing bubble.

Fannie Mae and Freddie Mac have recently sold new mortgage-backed securities that use derivatives to reduce the risk of default on mortgages they guarantee. [WSJ]Rey Mashayekhi