JPMorgan Chase & Co. (NYSE:JPM) has launched a new deal known as ‘J.P. Morgan Madison Avenue Securities Trust.’ As per the new deal, it will sell securities linked to more than $1 billion of mortgages in the latest series of bonds. The deal will be beneficial for Fannie Mae as the risk will be shared with debt investors.
The deal details
The new deal is much more like the debt that Fannie Mar started to issue last year. It was meant to share the risks and losses with the bond buyers. A new deal has been evaluated by Fitch and has received a BBB- rating. This rating is assigned to $19.8million part of the deal which also included $27.2 million junior ranked class.
The issuance of bonds
The new deal Of JPMorgan Chase & Co. (NYSE:JPM) is different from ‘Connecticut Avenue Securities’ deal of Fannie Mae in some aspects as bonds are not issued by the company but a special-purpose trust. The cash generated will be kept into a special account that will be depleted in case borrowers default. JPMorgan has placed all the mortgages of June, July and August into other separate bonds.
The transactions and benefits
Fannie Mae along with Freddie Mac has sold more than $11 billion of old risk-sharing notes and a new form of bulk insurance deals since July 2013. The transactions are reducing the risk for taxpayers that support the companies. The regulator has asked the companies to check out a variety of new deals. The new deal of JPMorgan Chase & Co. (NYSE:JPM) also intends to cut the quantum of credit risk.
The loans covered in the new deal are fully documented and high-quality mortgages with average credit borrower credit score of 750. The new deal will not have to face the risk of losses in case of initial defaults. The average loan-to-value ratio in the new deal stands at 76%.