New York, October 31, 2019 -- Moody's Investors Service ("Moody's") has assigned
definitive ratings to 15 classes of residential mortgage-backed
securities (RMBS) issued by GS Mortgage-Backed Securities Trust
(GSMBS) 2019-PJ3. The ratings range from Aaa (sf) to B2
(sf).
GSMBS 2019-PJ3 is the third prime jumbo transaction of 2019 issued
by Goldman Sachs Mortgage Company (GSMC). GSMC is a wholly owned
subsidiary of Goldman Sachs Bank USA and Goldman Sachs. The certificates
are backed by 394 30-year, fully-amortizing fixed-rate
mortgage loans with a total balance of $271,016,060
as of the October 1, 2019 cut-off date. Government
sponsored enterprises eligible loans (GSE-eligible loans) comprise
$110,160,694 of the pool balance, representing
40.65% of the total pool. All the loans are subject
to the Qualified Mortgage (QM) and Ability-to-Repay (ATR)
rules and are categorized as QM-Safe Harbor or QM-Agency
Safe Harbor.
The mortgage loans for this transaction were acquired by the seller and
sponsor, GSMC, from HomeBridge Financial Services, Inc.
(HomeBridge) (25.33%), loanDepot.com,
LLC (loanDepot) (19.86%) and Caliber Home Loans, Inc.
(Caliber) (13.57%). The remaining originators have
less than 10% by loan balance of the pool.
The weighted average (WA) loan-to-value (LTV) ratio of the
mortgage pool is 73.08%, which is in line with the
previous GSMBS 2019-PJ1 and GSMBS 2019-PJ2 transaction (collectively,
GSMBS PJ1 and PJ2) and also with other prime jumbo J.P.
Morgan Mortgage Trust (JPMMT) and Sequoia Mortgage Trust (SEMT) transactions
which had WA LTVs of approximately 70%. Similar to GSMBS
PJ1 and PJ2, JPMMT and SEMT prime jumbo transactions, the
borrowers in the pool have a WA FICO score of 762 and a WA debt-to-income
ratio of 36.2%. The WA mortgage rate of the pool
is 4.41%. In addition, 1 loan in the pool has
mortgage insurance. Certain loan characteristics may differ from
the data provided by GSMC because the calculations reflect our assumptions
or adjustments based either on third-party review results or other
information provided.
NewRez LLC (formerly known as New Penn Financial, LLC) d/b/a Shellpoint
Mortgage Servicing (Shellpoint) will service 100% of the pool.
The servicing fee for loans serviced by Shellpoint will be 0.030%.
We consider the servicing fee charged by Shellpoint low compared to the
industry standard of 0.25% for prime fixed rate loans and
in the event of a servicing transfer, the successor servicer may
not accept such an arrangement. However, the transaction
documents provide that any successor servicer to Shellpoint will be paid
the successor servicing fee rate of 0.25%, which is
not limited to the Shellpoint servicing fee rate.
Wells Fargo Bank, N.A. (Wells Fargo) will be the master
servicer and securities administrator (rated Aa1 by Moody's). U.S.
Bank Trust National Association will be the trustee. Pentalpha
Surveillance LLC will be the representations and warranties breach reviewer.
Distributions of principal and interest and loss allocations are based
on a typical shifting interest structure that benefits from a senior and
subordination floor.
The complete rating actions are as follows:
Issuer: GS Mortgage-Backed Securities Trust 2019-PJ3
Cl. A-1, Definitive Rating Assigned Aaa (sf)
Cl. A-2, Definitive Rating Assigned Aaa (sf)
Cl. A-3, Definitive Rating Assigned Aa1 (sf)
Cl. A-4, Definitive Rating Assigned Aa1 (sf)
Cl. A-5, Definitive Rating Assigned Aaa (sf)
Cl. A-6, Definitive Rating Assigned Aaa (sf)
Cl. A-7, Definitive Rating Assigned Aaa (sf)
Cl. A-8, Definitive Rating Assigned Aaa (sf)
Cl. A-9, Definitive Rating Assigned Aaa (sf)
Cl. A-10, Definitive Rating Assigned Aaa (sf)
Cl. B-1, Definitive Rating Assigned Aa2 (sf)
Cl. B-2, Definitive Rating Assigned A2 (sf)
Cl. B-3, Definitive Rating Assigned Baa2 (sf)
Cl. B-4, Definitive Rating Assigned Ba1 (sf)
Cl. B-5, Definitive Rating Assigned B2 (sf)
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expected loss for this pool in a baseline scenario is 0.69%
and reaches 7.77% at a stress level consistent with our
Aaa ratings.
We calculated losses on the pool using our US Moody's Individual Loan
Analysis (MILAN) model based on the loan-level collateral information
as of the cut-off date. Loan-level adjustments to
the model results included, but were not limited to, adjustments
for origination quality, third-party review (TPR) scope and
results, and the financial strength of the representation &
warranty (R&W) provider.
Moody's published an updated methodology for rating and monitoring
US RMBS backed by government-sponsored enterprises (GSEs) and private
label prime first-lien mortgage loans originated during or after
2009, "Moody's Approach to Rating US RMBS Using the
MILAN Framework" published on October 30, 2019 which replaces
the methodology titled "Moody's Approach to Rating US Prime
RMBS" published on November 15, 2018. The application
of this updated methodology resulted in a higher expected loss in a baseline
scenario and stress level consistent with our Aaa scenario but did not
lead to a change in ratings from the provisional ratings.
Collateral Description
GSMBS 2019-PJ3 is a securitization of a pool of 394 30-year
fully-amortizing fixed-rate mortgage loans with a total
balance of $271,016,060 as of the cut-off date,
with a WA remaining term to maturity of 356 months and a WA seasoning
of 4 months. The WA current FICO score of the borrowers in the
pool is 762. The WA LTV ratio of the mortgage pool is 73.08%,
which is in line with GSMBS PJ1 and PJ2, JPMMT and SEMT prime jumbo
transactions which had WA LTVs of about 70% on average.
Other characteristics of the loans in the pool are also generally comparable
to that of GSMBS PJ1 and PJ2, recent JPMMT and SEMT prime jumbo
transactions. The mortgage loans in the pool were originated mostly
in California (47.36% by loan balance). In addition,
1 loan in the pool has mortgage insurance.
Aggregator/Origination Quality
GSMC is the loan aggregator and mortgage seller for the transaction.
GSMC is overseen by the mortgage capital markets group within Goldman
Sachs. Senior management averages 16 years of mortgage experience
and 15 years of Goldman Sachs tenure. The loans sold to the trust
come from bulk purchases and from unaffiliated third-party originators.
We consider GSMC's aggregation platform to be relatively weaker than that
of peers due to the lack of sufficient historical performance and limited
quality control process. Nevertheless, since these loans
were originated to the originators' underwriting guidelines and we reviewed
each of the originators which contributed at least 10% of the loans
to the transaction (HomeBridge, loanDepot and Caliber), among
other considerations, their underwriting guidelines, performance
history, policies and documentation (to the extent available,
respectively), we did not apply a separate loss-level adjustment
for aggregation quality. Instead, we based our loss-level
adjustments on our reviews of each of the originators.
HomeBridge, loanDepot and Caliber originated 25.33%,
19.86% and 13.57%, respectively.
The remaining originators have less than 10% by loan balance of
the pool. Furthermore, because we consider Provident and
Caliber to have stronger residential prime jumbo loan origination practices
than their peers due to their strong underwriting processes and solid
loan performance, we decreased our base case and Aaa loss expectations
for non-conforming loans originated by Provident and Caliber.
Furthermore, because we consider Flagstar, loanDepot and PenFed
adequate originators of prime jumbo loans, we did not make any adjustments
to our base case and Aaa loss expectations for non-conforming loans
originated by these three originators. Finally, we increased
our base case and Aaa loss assumption for the loans originated by Home
Point Financial Corporation (3.48% by balance) due to limited
historical performance data, reduced retail footprints which limits
the originator's oversight on originations, and lack of strong controls
to support recent rapid growth.
Of note, we did not make an adjustment for GSE-eligible loans,
regardless of the originator, since those loans were underwritten
in accordance with GSE guidelines.
Servicing Arrangement
Shellpoint will be the named primary servicer for this transaction and
will service 100% of the pool. Shellpoint is an approved
servicer in good standing with Ginnie Mae, Fannie Mae and Freddie
Mac. Shellpoint's primary servicing location is located in Greenville,
South Carolina. Shellpoint services residential mortgage assets
for investors that include banks, financial services companies,
GSEs and government agencies.
Shellpoint will be paid a flat servicing fee of 0.030% per
annum. We consider the servicing fee charged by Shellpoint as low
compared to the industry standard of 0.25% for prime fixed
rate loans. In the event of a servicing transfer, the successor
servicer may not accept such an arrangement. However, the
transaction documents provide that any successor servicer to Shellpoint
will be paid the successor servicing fee rate of 0.25%,
which is not limited to the Shellpoint servicing fee rate. The
holder of 100% of the voting interests in the Class A-IO-S
certificates will have the right to terminate Shellpoint and any successor
servicer of the mortgage loans at any time subject to the terms of the
servicing agreement, the consent of the master servicer and certain
other conditions.
Third-party Review
AMC Diligence, LLC (AMC), Clayton Services LLC (Clayton) and
Digital Risk, LLC (Digital Risk), which are third party review
(TPR) firms, verified the accuracy of the loan-level information
that we received from the sponsor. The TPR firms conducted detailed
credit, regulatory compliance, property valuation and data
integrity reviews on 100% of the mortgage pool. The TPR
results indicated compliance with the originators' underwriting guidelines
for the vast majority of loans, no material compliance issues and
no material appraisal defects. The loans that had exceptions to
the originators' underwriting guidelines had strong documented compensating
factors such as significant liquid assets, low LTVs and consistent
long-term employment. The TPR firms also identified minor
compliance exceptions for reasons such as inadequate RESPA disclosures
(which do not have assignee liability) and TILA/RESPA Integrated Disclosure
(TRID) violations related to fees that were out of variance but then were
cured and disclosed. We did not make any adjustments to our expected
or Aaa loss levels due to the TPR results.
Representations & Warranties
GSMBS 2019-PJ3's R&W framework is in line with that of recent
GSMBS PJ1 and PJ2 and JPMMT transactions where an independent reviewer
is named at closing, and costs and manner of review are clearly
outlined at issuance. Our review of the R&W framework takes
into account the financial strength of the R&W providers, scope
of R&Ws (including qualifiers and sunsets) and enforcement mechanisms.
Pursuant to the related purchase agreement, each of the originators
in this pool will make certain R&Ws concerning the mortgage loans
(R&W providers). The R&W providers vary in financial strength.
The creditworthiness of the R&W provider determines the probability
that the R&W provider will be available and have the financial strength
to repurchase defective loans upon identifying a breach. Because
the R&W providers in this transaction are unrated and/or exhibit limited
financial flexibility we applied an adjustment to the loans for which
these entities provided R&Ws. With respect to certain R&Ws
made by these originators, GSMC will make a "gap" representation
covering the period from the date on which the related originator made
the related representation and warranty to the cut-off date or
closing date, as applicable. GSMC will not backstop any R&W
providers who may become financially incapable of repurchasing mortgage
loans. In fact, none of the mortgage loan seller, the
depositor, the servicer or any other party will backstop the obligations
of any originator or aggregator with respect to breaches of the mortgage
loan representations and warranties.
The loan-level R&Ws are strong and, in general,
either meet or exceed the baseline set of credit-neutral R&Ws
we identified for US RMBS. Among other considerations, the
R&Ws address property valuation, underwriting, fraud,
data accuracy, regulatory compliance, the presence of title
and hazard insurance, the absence of material property damage,
and the enforceability of the mortgage. The transaction has a number
of knowledge qualifiers, which do not appear material. While
a few R&Ws sunset after three years, all of these provisions
are subject to performance triggers which extend the R&W an additional
three years based on the occurrence of certain events of delinquency.
The R&W enforcement mechanisms are adequate. We analyzed the
triggers for breach review, the scope of the review, the consistency
and transparency of the review, and the likelihood that a breached
R&W would be put back to the R&W provider. The breach review
is systematic, transparent, consistent and independent.
The transaction documents prescribe a comprehensive set of tests that
the reviewer will perform to test whether the R&Ws are breached.
The tests, for the most part, are thorough, transparent
and consistent because the same tests will be performed for each loan
and the reviewer will report the results.
In accordance with the representations and warranties review procedures
undertaken by the breach reviewer, if the breach reviewer determines
that there has been a material test failure of a test in respect of a
representation and warranty, a repurchase request will be made of
the related responsible party. In such case, the related
responsible party may (1) dispute the repurchase request, (2) cure
the breach, (3) repurchase the affected mortgage loan from the issuing
entity or pay the loss amount with respect to such affected mortgage loan,
as applicable, or (4) in some circumstances, substitute another
mortgage loan. Overall, this remedy mechanism is consistent
with GSMBS 2019-PJ2, JPMMT and SEMT prime jumbo transactions.
Because third-party review was conducted on 100% of the
pool with adequate results, this mitigates the risk of future R&W
violations.
Trustee and Master Servicer
The transaction trustee is U.S. Bank Trust National Association
(U.S. Bank Trust). U.S. Bank Trust
is a national banking association and a wholly owned subsidiary of U.S.
Bank National Association, the fifth largest commercial bank in
the United States. U.S. Bank Trust has provided owner
trustee services since the year 2000.
Wells Fargo will act as master servicer and securities administrator under
the sale and servicing agreement and as custodian under the custodial
agreement. Wells Fargo is a national banking association and a
wholly-owned subsidiary of Wells Fargo & Company. A
diversified financial services company, Wells Fargo & Company
is a U.S. bank holding company with approximately $1.9
trillion in assets and approximately 263,000 employees as of June
30, 2019. As master servicer, Wells Fargo is responsible
for servicer oversight, the termination of servicers and the appointment
of successor servicers. We consider the presence of an experienced
master servicer such as Wells Fargo to be a mitigant for any servicing
disruptions. Wells Fargo is committed to act as successor servicer
if no other successor servicer can be engaged.
Tail Risk and Locked Out Percentage
The securitization is a single pool which has a shifting interest structure
that benefits from a senior subordination floor and a subordinate floor.
For deals in which the issuer does not exercise a clean-up call
option, the remaining subordination at the tail end of transaction's
life could become insufficient to support high ratings on senior bonds
as tranche performance depends highly on the performance of a small number
of loans. To address this risk, the transaction has a senior
floor of 2.35% and a locked out percentage of 1.60%,
both expressed as a percentage of the closing pool balance. The
subordinate locked out amount protects both the senior tranches and non-locked
subordinate tranches. It diverts allocable principal payments from
locked out subordinate tranches to the non-locked subordinate tranches.
Of note, other than the Class B1, a subordinate tranche is
locked out if its outstanding balance plus the outstanding balance of
all classes subordinate to it. Class B1 will not be subject to
the locked out amount. If the Class B1 is paid to zero and the
aggregate amount of outstanding subordinate tranches is equal to or less
than the locked out amount, than the allocable principal payments
from all subordinate tranches are diverted to pay senior tranches until
they are paid off.
We calculate the credit neutral floors for a given target rating as shown
in our principal methodology. The senior subordination floor is
equal to an amount which is the sum of the balance of the six largest
loans at closing multiplied by the higher of their corresponding MILAN
Aaa severity or a 35% severity. The senior subordination
floor of 2.35% and subordinate floor of 1.60%
are consistent with the credit neutral floors for the assigned ratings.
Transaction Structure
The transaction uses the shifting interest structure in which the senior
bonds benefit from a number of protections. Funds collected,
including principal, are first used to make interest payments to
the senior bonds. Next, principal payments are made to the
senior bonds. Next, available distribution amounts are used
to reimburse realized losses and certificate write-down amounts
for the senior bonds (after subordinate bond have been reduced to zero,
i.e. the credit support depletion date). Finally,
interest and then principal payments are paid to the subordinate bonds
in sequential order.
Realized losses are allocated in a reverse sequential order, first
to the lowest subordinate bond. After the balance of the subordinate
bonds is written off, losses from the pool begin to write off the
principal balance of the senior support bond, and finally losses
are allocated to the super senior bonds.
In addition, the pass-through rate on the bonds is based
on the net WAC as reduced by the sum of (i) the reviewer annual fee rate
and (ii) the capped trust expense rate. In the event that there
is a small number of loans remaining, the last outstanding bonds'
rate can be reduced to zero.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect investors
against current expectations of loss could drive the ratings down.
Losses could rise above Moody's original expectations as a result of a
higher number of obligor defaults or deterioration in the value of the
mortgaged property securing an obligor's promise of payment. Transaction
performance also depends greatly on the US macro economy and housing market.
Other reasons for worse-than-expected performance include
poor servicing, error on the part of transaction parties,
inadequate transaction governance and fraud.
Up
Levels of credit protection that are higher than necessary to protect
investors against current expectations of loss could drive the ratings
of the subordinate bonds up. Losses could decline from Moody's
original expectations as a result of a lower number of obligor defaults
or appreciation in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly
on the US macro economy and housing market.
Methodology
The principal methodology used in these ratings was "Moody's Approach
to Rating US RMBS Using the MILAN Framework " published in October 2019.
Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
In addition, Moody's publishes a weekly summary of structured finance
credit ratings and methodologies, available to all registered users
of our website www.moodys.com/SFQuickCheck.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
Further information on the representations and warranties and enforcement
mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1200792.
The analysis relies on an assessment of collateral characteristics to
determine the collateral loss distribution, that is, the function
that correlates to an assumption about the likelihood of occurrence to
each level of possible losses in the collateral. As a second step,
Moody's evaluates each possible collateral loss scenario using a
model that replicates the relevant structural features to derive payments
and therefore the ultimate potential losses for each rated instrument.
The loss a rated instrument incurs in each collateral loss scenario,
weighted by assumptions about the likelihood of events in that scenario
occurring, results in the expected loss of the rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Philip Rukosuev
Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Sang Shin
VP - Sr Credit Officer/Manager
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
