SCI CRT Awards 2020

SCI CRT Awards 2020

Wednesday 25 November 2020 16:45 London/ 11.45 New York/ 00.45 (+ 1 day) Tokyo

North American Transaction of the Year: Chase 2019-CL1

It would take a brave man, or woman, to argue that JPMorgan’s Chase Mortgage Reference Notes 2019-CL1 was not the most eye-catching CRT deal of the last 12 months in North America. As such, it is a worthy winner of the SCI North American Transaction of the Year award.

Of course, it was by no means certain after the deal was launched that it would win any awards, or indeed if it would remain a deal at all for very long. The US$84m transaction was offered to investors in October 2019 and it was not clear whether it would attain the green light of approval from the OCC, ensuring favourable capital treatment.

The bank had attempted to issue a CRT about three years earlier and had not received the thumbs-up from the regulator, so the augurs were not all that promising. Indeed, JPMorgan retained the right to collapse the deal if it did not receive this regulatory backing.

Consequently, when the OCC gave its blessing – an event believed to occur in February 2020 – it was a red-letter day, not only for this deal but the entire North American CRT market. Since that day, JPMorgan has followed with another mortgage CRT, its first auto loan CRT and is at time of writing (late October 2020) believed to be marketing a CRT referencing corporate and SME loans.

The CRT market in the US has been dominated by the GSEs, but Chase 2019-CL1 shows that any US bank with credit exposure on its books can, in theory, make use of the mechanism to reduce capital obligations. It was hailed at the time as the first rated synthetic mortgage risk transfer deal from a US bank.

Principal payments are based on payments received from a reference portfolio of 979 prime quality residential mortgages with a total balance of US$757.23m.

What is thought to have won round the regulators is the fact that the deal is a direct obligation upon JPMorgan, rather than a trust or SPV. This means that the risk is unambiguously owned by the bank, but it does also mean that issuers following the same route and using the same mechanism are likely to be well-rated large banks, rather than smaller, regional institutions.

Though this landmark deal has been followed by a trickle of similar transactions rather than a waterfall, it does appear that its creation and acceptance by the regulators marks a sea change in the US CRT world. The US CRT market might never rival that of Europe, but it seems that Chase 2019-CL1 has lighted a path that others might follow.

Honourable mention: CAS 2020-SBT1
In February 2020, Fannie Mae carved out another fresh frontier when it brought its first Connecticut Avenue Securities (CAS) Seasoned B-Tranche transaction, designated CAS 2020-SBT1. The deal, worth US$966m, transfers a portion of subordinate risk from Fannie Mae to investors on 11 B classes from eight CAS deals issued from late 2015 through 2016.

The reference pool for the deal consisted of over 700,000 single-family mortgage loans with an outstanding unpaid principal balance of approximately US$152bn, the largest-ever reference pool for a GSE CRT transaction.

It was the second transaction in a new programme to transfer risk on the seasoned loan book and, as such, offers investors a different type of exposure to the usual CAS REMIC deals. There was strong demand for all tranches, with each over-subscribed, according to Fannie Mae.

For complete coverage of SCI’s 2020 CRT Awards, click here.


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