June was a rough month for jumbo-mortgage securitizations, with only two private-label offerings — together valued at roughly $821 million — brought to market.
The two jumbo-loan deals to make it out of the gate last month were issued by Rocket Mortgage and J.P. Morgan Chase via the Rocket Mortgage Trust and J.P. Morgan Mortgage Trust conduits. The Rocket prime jumbo deal was backed by mortgages valued at $337.9 million and the J.P. Morgan deal was collateralized by jumbo mortgages valued at $483.4 million.
Ahead of its June offering, Rocket already had sponsored three prime jumbo securitizations this year, backed by mortgages valued around $1.9 billion. The most recent of the three was in April, with the previous two in January and February, according to deals tracked by Kroll Bond Rating Agency (KBRA). Through June of this year, then, Rocket has sponsored a total of four private-label securitizations secured by prime jumbo loans valued at slightly north of $2.2 billion.
J.P. Morgan has been far more active this year, with nine prime-jumbo offerings through the end of June valued at $7.8 billion — two involving high loan-to-value prime jumbo-loan pools. But like Rocket, the lender has seen its private-label securitization activity fall off sharply in the past few months, with only one prime jumbo deal offered in May and one in June.
Across both the Rocket and J.P. Morgan jumbo offerings, a noticeable trend is the wide spread between current mortgage rates and the weighted average coupon (or interest rate) for the loan pools backing the securitization deals. That average coupon has been creeping up as the year moves forward for securitization deals sponsored by both lenders, according to bond-rating reports for each, but it is being outpaced by fast-rising market rates — propelled by the Federal Reserve’s monetary tightening policies in its battle against inflation.
A huge volume of loans was originated at much lower interest rates last year during the height of the refi boom, and many of those loans were still winding their way through the securitization pipeline in 2022, given most loans have several months of seasoning before being securitized. That has created a distortion in execution and pricing in the secondary mortgage market.
For Rocket, according to KBRA’s bond-rating reports, the average coupon on its jumbo offerings has risen from 3.02% to 3.91% between its first jumbo transaction in January to its most recent deal in June. For J.P. Morgan, according to a bond-rating report from Fitch Ratings, the average weighted coupon for the jumbo loan pools in its offerings has increased from 3.3% in April — prior comparable data was unavailable in the report — to 3.8% in its most recent offering in June.
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In both cases, the most recent coupon figures fall well short of current market rates for 30-year fixed mortgages. That pattern has escalated since the start of the year, when interest rates started to shoot up dramatically.
For the final week of June, the rate for a 30-year fixed mortgage was in the 5.7% range. Even with big drop in rates in the first week of July — the sharpest decline since 2008, to 5.3% for a 30-year fixed rate mortgage, according to Freddie Mac — the spread remains wide between the average coupons of the Rocket and J.P. Morgan jumbo offerings and current market rates.
The average contract interest rate for 30-year fixed-rate jumbo mortgages (balances greater than $647,200) is even a tad lower than the prevailing market rate of 5.3% — coming in at 5.25 percent for the week ending July 8, according to the Mortgage Bankers Association’s weekly mortgage applications survey.
Digital mortgage exchange and aggregator MAXEX reported in its recently released June market update that the overall reduction in mortgage originations, “due to higher rates, increased rate volatility and widening spreads continued to impact the demand for RMBS [residential mortgage-backed securities] in June.”
“Just two [jumbo-securitization] deals priced in June, compared to three in May,” the MAXEX report states. “June’s issuance was more than $500 million below May’s numbers and more than $1.5 billion lower than April’s issuance.”
That slowdown in the private-label securitization volume compared with the start of the year is not isolated to prime jumbo deals, either, according to data from KBRA.
Year to date through June 2022, KBRA’s deal-tracking data shows that 111 prime and nonprime securitization deals hit the market backed by loan pools valued in total at some $52.8 billion. Last year, over the same time frame, 97 PLS transactions were recorded backed by mortgage pools valued at $39.6 billion.
Of note, however, is that the bulk of the prime and nonprime PLS deal volume in 2022 so far is from the first quarter of this year — 67 deals valued at $33.9 billion. Volume dropped off considerably in the second quarter, as rates continued to rise, to 44 deals valued at $18.9 billion, according to KBRA data,
“The market for securitizations has all but dried up, with just two prime jumbo RMBS issuances and one agency-eligible investor issuance printing for June,” MAXEX reported. “To put it into perspective, RMBS issuance in June 2022 [based on MAXEX’s deal tracking] totaled less than $900 million, versus the June 2021 total of nearly $5 billion.”
