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Rating Action:

Moody's assigns definitive ratings to Prime RMBS issued by J.P. Morgan Mortgage Trust 2019-3

30 Apr 2019

New York, April 30, 2019 -- Moody's Investors Service (Moody's) has assigned definitive ratings to 22 classes of residential mortgage-backed securities (RMBS) issued by J.P. Morgan Mortgage Trust (JPMMT) 2019-3. The ratings range from Aaa (sf) to B3 (sf).

The certificates are backed by 591 30-year, fully-amortizing fixed-rate mortgage loans with a total balance of $387,326,703 as of the April 1, 2019 cut-off date. Similar to prior JPMMT transactions, JPMMT 2019-3 includes conforming mortgage loans (39% by loan balance) mostly originated by United Shore Financial Services, LLC d/b/a United Wholesale Mortgage and Shore Mortgage (United Shore), JPMorgan Chase Bank, National Association (Chase), AmeriHome Mortgage Company, LLC (AmeriHome) and LoanDepot.com, LLC (LoanDepot) underwritten to the government sponsored enterprises (GSE) guidelines in addition to prime jumbo non-conforming mortgages purchased by J.P. Morgan Mortgage Acquisition Corp. (JPMMAC), sponsor and mortgage loan seller, from various originators and aggregators. United Shore, Chase, AmeriHome and LoanDepot originated 24%, 22%, 16% and 10% of the mortgage pool, respectively.

Chase, New Penn Financial, LLC d/b/a Shellpoint Mortgage Servicing (Shellpoint), USAA Federal Savings Bank (USAA) and AmeriHome will be the servicers for majority of the pool. Shellpoint will act as interim servicer for these mortgage loans from April 30, 2019 until the servicing transfer date, which is expected to occur on or about June 1, 2019. After the servicing transfer date, these mortgage loans will be serviced by Chase. With respect to the Mortgage Loans serviced by AmeriHome, Cenlar FSB will be the subservicer and with respect to the Mortgage Loans serviced by USAA, Nationstar Mortgage LLC (Nationstar) will be the subservicer.

The servicing fee for loans serviced by Chase and Shellpoint will be based on a step-up incentive fee structure with a monthly base fee of $20 per loan and additional fees for delinquent or defaulted loans. All other servicers will be paid a monthly flat servicing fee equal to one-twelfth of 0.25% of the remaining principal balance of the mortgage loans. Nationstar will be the master servicer and Citibank, National Association (Citibank) will be the securities administrator and Delaware 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 senior and subordination floors.

The complete rating actions are as follows:

Issuer: J.P. Morgan Mortgage Trust 2019-3

Cl. A-1, Definitive Rating Assigned Aaa (sf)

Cl. A-2, Definitive Rating Assigned Aaa (sf)

Cl. A-3, Definitive Rating Assigned Aaa (sf)

Cl. A-4, Definitive Rating Assigned Aaa (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. A-11, Definitive Rating Assigned Aaa (sf)

Cl. A-12, Definitive Rating Assigned Aaa (sf)

Cl. A-13, Definitive Rating Assigned Aaa (sf)

Cl. A-14, Definitive Rating Assigned Aa2 (sf)

Cl. A-15, Definitive Rating Assigned Aa2 (sf)

Cl. A-16, Definitive Rating Assigned Aaa (sf)

Cl. A-17, Definitive Rating Assigned Aaa (sf)

Cl. B-1, Definitive Rating Assigned A1 (sf)

Cl. B-2, Definitive Rating Assigned A3 (sf)

Cl. B-3, Definitive Rating Assigned Baa3 (sf)

Cl. B-4, Definitive Rating Assigned Ba2 (sf)

Cl. B-5, Definitive Rating Assigned B3 (sf)

RATINGS RATIONALE

Summary Credit Analysis and Rating Rationale

Moody's expected cumulative net loss on the aggregate pool is 0.40% in a base scenario and reaches 6.10% at a stress level consistent with the Aaa (sf) 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 adjustments to probability of default for higher and lower borrower debt-to-income ratios (DTIs), for borrowers with multiple mortgaged properties, self-employed borrowers, and for the default risk of Homeownership association (HOA) properties in super lien states. Our final loss estimates also incorporate adjustments for origination quality and the financial strength of representation & warranty (R&W) providers.

We base our definitive ratings on the certificates on the credit quality of the mortgage loans, the structural features of the transaction, the origination quality, the servicing arrangement, the strength of the third party due diligence and the R&W framework of the transaction.

Aggregation/Origination Quality

We consider JPMMAC's aggregation platform to be adequate and we did not apply a separate loss-level adjustment for aggregation quality. In addition to reviewing JPMMAC as an aggregator, we have also reviewed the originators contributing a significant percentage of the collateral pool. For these originators, we reviewed their underwriting guidelines and their policies and documentation (where available). We increased our base case and Aaa (sf) loss expectations for certain originators of non-conforming loans, such as United Shore and AmeriHome, where we do not have clear insight into the underwriting practices, quality control and credit risk management. 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

We consider the overall servicing arrangement for this pool to be adequate given the strong servicing arrangement of the servicers, as well as the presence of a strong master servicer to oversee the servicers. In this transaction, Nationstar Mortgage LLC (Nationstar) will act as the master servicer. The servicers are required to advance principal and interest on the mortgage loans. To the extent that the servicers are unable to do so, the master servicer will be obligated to make such advances. In the event that the master servicer, Nationstar (rated B2), is unable to make such advances, the securities administrator, Citibank (rated Aa3) will be obligated to do so.

JPMorgan Chase Bank, National Association (servicer): Chase is a seasoned servicer with over 20 years of experience servicing residential mortgage loans and has demonstrated adequate servicing ability as a primary servicer of prime residential mortgage loans. As of June 30, 2018, Chase was servicing a portfolio of about $762 billion.

Shellpoint Mortgage Servicing (servicer): Shellpoint has demonstrated adequate servicing ability as a primary servicer of prime residential mortgage loans. Shellpoint has the necessary processes, staff, technology and overall infrastructure in place to effectively service the transaction.

Nationstar Mortgage LLC (master servicer): Nationstar is the master servicer for the transaction and provides oversight of the servicers. We consider Nationstar's master servicing operation to be above average compared to its peers. Nationstar has strong reporting and remittance procedures and strong compliance and monitoring capabilities. The company's senior management team has on average more than 20 years of industry experience, which provides a solid base of knowledge and leadership. Nationstar's oversight encompasses loan administration, default administration, compliance, and cash management. Nationstar is an indirectly held, wholly owned subsidiary of Nationstar Mortgage Holdings Inc. We rate rate Nationstar Mortgage Holdings Inc. at B2 stable.

Collateral Description

JPMMT 2019-3 is a securitization of a pool of 591 30-year, fully-amortizing fixed-rate mortgage loans with a total balance of $387,326,703 as of the cut-off date, with a weighted average (WA) remaining term to maturity of 356 months, and a WA seasoning of 4 months. The borrowers in this transaction have high FICO scores and sizeable equity in their properties. The WA current FICO score is 767 and the WA original combined loan-to-value ratio (CLTV) is 72.2%. The characteristics of the loans underlying the pool are generally comparable to other JPMMT transactions backed by prime mortgage loans that we have rated.

In this transaction, about 39% of the pool by loan balance was underwritten to Fannie Mae's and Freddie Mac's guidelines (conforming loans). The conforming loans in this transaction have a high average current loan balance at $575,141. The high conforming loan balance of loans in JPMMT 2019-3 is attributable to the large number of properties located in high-cost areas, such as the metro areas of Los Angeles (18%), New York City (10%) and San Francisco (10%). United Shore, Chase, AmeriHome and LoanDepot originated 24%, 22%, 16% and 10% of the mortgage pool, respectively. The remaining originators each account for less than 10% of the principal balance of the loans in the pool.

Servicing Fee Framework

The servicing fee for loans serviced by Chase and Shellpoint will be based on a step-up incentive fee structure with a monthly base fee of $20 per loan and additional fees for servicing delinquent and defaulted loans. The other servicers, AmeriHome and USAA, will be paid a monthly flat servicing fee equal to one-twelfth of 0.25% of the remaining principal balance of the mortgage loans. Shellpoint will act as interim servicer until the servicing transfer date, June 1, 2019 or such later date as determined by the issuing entity and Chase.

While this fee structure is common in non-performing mortgage securitizations, it is relatively new to rated prime mortgage securitizations which typically incorporate a flat 25 basis point servicing fee rate structure. By establishing a base servicing fee for performing loans that increases with the delinquency of loans, the fee-for-service structure aligns monetary incentives to the servicer with the costs of the servicer. The servicer receives higher fees for labor-intensive activities that are associated with servicing delinquent loans, including loss mitigation, than they receive for servicing a performing loan, which is less labor-intensive. The fee-for-service compensation is reasonable and adequate for this transaction because it better aligns the servicer's costs with the deal's performance. Furthermore, higher fees for the more labor-intensive tasks make the transfer of these loans to another servicer easier, should that become necessary. By contrast, in typical RMBS transactions a servicer can take actions, such as modifications and prolonged workouts, that increase the value of its mortgage servicing rights.

The incentive structure includes an initial monthly base servicing fee of $20 for all performing loans and increases according to a pre-determined delinquent and incentive servicing fee schedule.

The delinquent and incentive servicing fees will be deducted from the available distribution amount and Class B-6 net WAC. The transaction does not have a servicing fee cap, so, in the event of a servicer replacement, any increase in the base servicing fee beyond the current fee will be paid out of the available distribution amount.

Third-party Review and Reps & Warranties

Four third party review (TPR) firms verified the accuracy of the loan-level information that we received from the sponsor. These firms conducted detailed credit, valuation, regulatory compliance 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 appraisal defects. The loans that had exceptions to the originators' underwriting guidelines had strong documented compensating factors such as low DTIs, low LTVs, high reserves, high FICOs, or clean payment histories. 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 (sf) loss levels due to the TPR results.

JPMMT 2019-3's R&W framework is in line with that of other 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.

The R&W providers vary in financial strength. JPMorgan Chase Bank, National Association (rated Aa2) is the R&W provider for approximately 22% (by loan balance) of the pool. We made no adjustments to the loans for which Chase and USAA Federal Savings Bank (a subsidiary of USAA Capital Corporation which is rated Aa1) provided R&Ws since they are highly rated entities. In contrast, the rest of the R&W providers are unrated and/or financially weaker entities. We applied an adjustment to the loans for which these entities provided R&Ws. No party will backstop or be responsible for backstopping any R&W providers who may become financially incapable of repurchasing mortgage loans.

For loans that JPMMAC acquired via the MAXEX platform, MAXEX under the assignment, assumption and recognition agreement with JPMMAC, will make the R&Ws. The R&Ws provided by MAXEX to JPMMAC and assigned to the trust are in line with the R&Ws found in the JPMMT transactions. Five Oaks Acquisition Corp. will backstop the obligations of MaxEx with respect to breaches of the mortgage loan representations and warranties made by MaxEx.

Trustee and Master Servicer

The transaction Delaware trustee is Citibank. The custodian's functions will be performed by Wells Fargo Bank, N.A. and Chase. The paying agent and cash management functions will be performed by Citibank. Nationstar Mortgage LLC, as master servicer, is responsible for servicer oversight, and termination of servicers and for the appointment of successor servicers. In addition, Nationstar is committed to act as successor if no other successor servicer can be found. The master servicer is required to advance principal and interest if the servicer fails to do so. If the master servicer fails to make the required advance, the securities administrator is obligated to make such advance.

Tail Risk & Subordination Floor

This deal has a standard shifting-interest structure, with a subordination floor to protect against losses that occur late in the life of the pool when relatively few loans remain (tail risk). When the total senior subordination is less than 1.70% of the original pool balance, the subordinate bonds do not receive any principal and all principal is then paid to the senior bonds. In addition, if the subordinate percentage drops below 6.00% of current pool balance, the senior distribution amount will include all principal collections and the subordinate principal distribution amount will be zero. The subordinate bonds themselves benefit from a floor. When the total current balance of a given subordinate tranche plus the aggregate balance of the subordinate tranches that are junior to it amount to less than 1.20% of the original pool balance, those tranches do not receive principal distributions. The principal those tranches would have received is directed to pay more senior subordinate bonds pro-rata.

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 (other than the Class A-R Certificates) 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.

The Class A-11 Certificates will have a pass-through rate that will vary directly with the rate of one-month LIBOR and the Class A-11-X Certificates will have a pass-through rate that will vary inversely with the rate of one-month LIBOR.

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 Prime RMBS" published in November 2018. 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/viewresearchdoc.aspx?docid=PBS_1173234.

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 or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 ratings, this announcement provides certain regulatory disclosures in relation to the 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.

Max Sauray
Asst Vice President - 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

Sonny Weng
Vice President - Senior Analyst
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

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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