EFTA02565756

From: Barrett, Paul S Sent: Monday, February 11, 2013 5:08 PM To: Epstein, Jeffrey ([email protected]) Cc: Ens, Amanda; Weissend, Renee E Subject: NEW HY RMBS BWIC - 54.3mm of RFMSI 04-54 1M1 ® 85-16 (6.51% yield/2.97 durn) Jeffrey We should buy 51MM of this bond. US Onshore Clients — Blue Sky (U.S. State Securities Law): Please confirm Blue Sky eligibility before soliciting to a US Onshore client by entering the CUSIP into the web tool located at: http://pscppvl.amer.jpmchase.net:8080/BlueSkyPage.html and review to see if your client's state of residence is listed. If you receive 'NO SECURITY FOUND', 'NO STATES FOUND' or the security DOES NOT HAVE A CUSIP or is not USD- denominated, then please contact your SM or local compliance officer and provide the requested security and client information. Please note that a suitability review and other pre-trade procedures must still be followed. THE BOND: The RFMSI 04-S4 1M1 is a Prime Seasoned Fix 5.25% Sub bond backed by 105 months seasoned fix mortgages. The bond has 2.38% credit enhancement vs 7.08% 60+ delinquencies, for a 0.34x coverage ratio. THE COLLATERAL: The pool consists of 145 Prime loans that are 105 months seasoned with an average updated LTV of 56%. The average balance of the loans is 5296k — this coupled with the low updated LTV should result in both low CDRs and Severities. In fact, there has been only 2 CDR prints over the last 12 months and the average severity of those 2 prints is 20.64%. Our base case assumes 35% severity ramping down to 30% over 3 years. What's more interesting is that the 5 foreclosure loans in the pipe have an updated LTV of 41%, which is even lower than the overall pool LTV of 56%. According to our model, this should translate to lower severities at liquidation. THE STORY: For investors looking for a housing recovery play backed by seasoned Prime collateral, this bond offers a great convexity story levered to prepayments and overall homeowner performance. Please call the desk with all bids/inquiries related to this bond. X32124 HIGHLIGHTS HPI Updated LTV = 56% 87% of the borrowers have not missed a payment in the past 2 years EFTA_R1_01730425 EFTA02565756 105 months seasoned 735 FICO $296k average balance **Source: Bloomberg REMSI 2004-54 1M1 Offered @ 85-16 BOND DESCRIPTION Prepay Rate 20 CPR 24 CPR 28 CPR Cusip: 76111XHZ9 Default Rate 2 ramp 20 4 3 ramp 12 2 CDR 2 ramp 20 4 3 ramp 36 1.75 CDR 2 ramp 20 4 3 ramp 12 1.5 CDR Original Face: 4,314,300 Default Severity 40 ramp 36 35 35 ramp 36 30 30 Current Face: 2 EFTA_R1_01730426 EFTA02565757 2,002,760 Delinq Rate 7.5 Percent 7.5 Percent 7.5 Percent Bond Type: Prime Fix 5.25% Men Delinq Advance (% of P&I) 100 100 100 Ratings (S&P/Moodys/Fitch): CCC/-/NR Current Coupon: 5.250% Yield @ Base Case 6.509% Price @ 85.16 WAL @ Base Case 4.03 Yield 2.124 3 EFTA_R1_01730427 EFTA02565758 6.509 9.838 Principal Window @ Base Case Mar13 to Oct37 Spread over Tsy 136 575 912 Writedown % 14.66% Duration 3.18 2.97 2.71 Current Credit Enhancement: 2.38% WAL 4.05 4.03 3.84 60+ Delinquencies 7.08 Principal Window Mar13 to Mar36 Mar13 to Oct37 Mar13 to Oct37 4 EFTA_R1_01730428 EFTA02565759 60+ Delinquency Coverage 0.34x Principal Writedown 29.22% 14.66% 3.28% Total Collat Loss 0.54% 0.46% 0.39% UNDERLYING COLLATERAL DESCRIPTION Total Liquidation 7.59% 6.83% 5.55% Average Loan Balance ($,000s) 296 Loan Count 145 HISTORICAL PERFORMANCE Mortgage Type Seasoned Prime 3Oyr Fix 5 EFTA_R1_01730429 EFTA02565760 1 MOS 3 MOS 6 MOS Wtd Avg Mortgage Coupon 5.655% CPR 27.23 31.87 27.45 Wtd Avg FICO Score 735 CDR 0.00 4.64 2.20 Wtd Avg Orig Loan•to•Value 54.81% SEV NA 30.01 30.01 HPI Adj LTV 56.15% Weighted Avg Loan Age 105 6 EFTA_R1_01730430 EFTA02565761 Owner Occupied 96.17 Top 1 Geo Concentration CA 49% Top 2 Geo Concentration TX 7% Top 3 Geo Concentration NY 5% Always Current (24 mos) 86.81% IMPORTANT DISCLAIMER: Non-agency RM8S is a complex fixed income product and is not suitable for all investors. Please note that while desk assumptions are driven by a number of collateral and macro factors, the historical performance of a deal is not indicative of its future performance. Additionally, this message is a product of sales and trading and is not a research report. Other key risks to consider are outlined below: All investments are subject to possible loss of principal Non-Agency bonds may have limited liquidity and clients should be aware that the secondary market for mortgage-backed securities has experienced periods of illiquidity and may do so in the future. Illiquidity means that there may not be any purchasers for your class of certificates. Although any class of certificates may experience illiquidity, it is more likely that classes that are lower in the capital structure and non-investment grade related may experience greater illiquidity than more senior, investment-grade rated classes. High Yield Non-Agency bonds are speculative non-investment grade bonds that have higher risk of default or other adverse credit events which are appropriate for high risk investors only 7 EFTA_R1_01730431 EFTA02565762 Non-Agency bonds are intended for clients with a minimum total net worth of $50mm. Please make sure your client fulfills this requirement before soliciting this order. This commentary is a product of JPMorgan Global Wealth Managements Taxable Fixed Income Trading Desk and not JPMorgan's Research Department. The views expressed in this trading desk commentary may differ from those of JPMorgan's Research Department. Any opinions expressed in this trading desk commentary are subject to change without notice and JPMorgan is under no obligation to update or keep this information current. Bee-Ann Benson I Vice President I J.P. Morgan Global Wealth Management 270 Park Avenue, Floor 5, New York, New York 10017 T: 212 464 0608 I F: 212 464 1129 I This email is confidential and subject to important disclaimers and conditions including on offers for the purchase or sale of securities, accuracy and completeness of information, viruses, confidentiality, legal privilege, and legal entity disclaimers, available at http://www.jpmorgan.com/pages/disclosures/email. 8 EFTA_R1_01730432 EFTA02565763