JPMorgan Chase & Co. sold bonds tied to about $304 million of U.S. home loans without government backing, adding to signs of life in the market.
The transaction included $171 million of top-rated securities paying a 3 percent coupon, which were sold at 102.2 cents on the dollar, according to a person with knowledge of the offering who asked not to be identified citing lack of authorization to speak publicly. That’s about 1.5 cents on the dollar less than comparable benchmark Fannie Mae-guaranteed bonds, according to data compiled by Bloomberg.
The notes are unlike other recent deals because they’re backed almost entirely by 15-year mortgages, which are often taken by “more financially secure” borrowers relative to more common 30-year loans, according to a presale report by Standard & Poor’s. The average size of the mortgages, at about $558,000, was also smaller than the $850,000 in previous JPMorgan deals since the 2008 financial crisis, S&P said. They were mainly “jumbo” loans, it said.
The transaction’s contracts included an “untested and rigid” process for forcing JPMorgan or other originators of the underlying loans to buy back misrepresented debt, S&P said. Seeing that “the framework is more restrictive than those in other recent prime transactions, we imposed additional loss coverage requirements in our review.”
While issuance of non-agency securities tied to new loans jumped to $13.4 billion last year from $3.5 billion in 2012, sales collapsed after September, Bloomberg data show. Issuance totals about $2.1 billion this year, and Citigroup Inc. has been also planning a sale this month. Offerings peaked at $1.2 trillion in both 2005 and 2006.
Jumbo mortgages are those larger than allowed in government-supported programs. Limits now range from $417,000 to $625,500 for Fannie Mae and Freddie Mac loans with the lowest costs for borrowers using 20 percent down payments.