J.P. Morgan Chase & Co. to Issue Fiat Securities

Not to be outdone by the Federal Reserve, J.P. Morgan Chase & Co. will issue commercial mortgage-backed securities (CMBS) backed by defaulted loans. Fiat securities may be the only method that J. P. Morgan can use to postpone the inevitable bankruptcy coming from their exposure to the EU derivative collapse.

David DeGerolamo

JP Morgan To Revive RTC-Style Commercial Mortgage Securities

J.P. Morgan Chase & Co. (JPM) next year plans to issue the first U.S. commercial mortgage-backed securities supported by defaulted loans since the 1990s as it revives a practice that regulators used to extricate the nation from the savings-and-loan crisis.

The investment bank has approached rating agencies with two pools of distressed loans that it acquired from European banks and other financial institutions, according to people familiar with the matter. J.P. Morgan wants to create commercial mortgage backed securities, or CMBS, backed by the troubled properties with interest and principal payments coming from property sales and the buildings’ reduced cash flows.

J.P. Morgan as well as other banks are considering the business in hopes that such securitizations could become a popular way for investors to finance bulk purchases of loans from banks and loan servicers. These problem loans have been a drag on lenders since the downturn hit, but lately they’ve become more aggressive about unloading them at discounted prices.

Moody’s Investors Service is predicting that “several billion dollars” in commercial mortgage securities backed by non-performing loans will be issued next year starting in the first quarter.

“Whenever you have a downturn, the first couple of years involve anger and denial, but then lenders get down to business and start cleaning up the mess,” said Tad Philipp, who as director of commercial real estate research at Moody’s Investors Service is reviewing some potential deals now.

Bankers are hearkening back to the aftermath of the U.S. savings-and-loan crisis of the late 1980s and early 1990s, when the Resolution Trust Corp. was formed to work through hundreds of thousands of residential and commercial loans. The agency in 1992 began selling pools of bad debt carved up into bonds sold to investors.


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