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Rating Action:

Moody's assigns provisional ratings to Prime RMBS issued by GS Mortgage-Backed Securities Trust 2019-PJ3

17 Oct 2019

New York, October 17, 2019 -- Moody's Investors Service (Moody's) has assigned provisional ratings to 15 classes of residential mortgage-backed securities (RMBS) issued by GS Mortgage-Backed Securities Trust (GSMBS) 2019-PJ3. The ratings range from (P)Aaa (sf) to (P)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, Assigned (P)Aaa (sf)

Cl. A-2, Assigned (P)Aaa (sf)

Cl. A-3, Assigned (P)Aa1 (sf)

Cl. A-4, Assigned (P)Aa1 (sf)

Cl. A-5, Assigned (P)Aaa (sf)

Cl. A-6, Assigned (P)Aaa (sf)

Cl. A-7, Assigned (P)Aaa (sf)

Cl. A-8, Assigned (P)Aaa (sf)

Cl. A-9, Assigned (P)Aaa (sf)

Cl. A-10, Assigned (P)Aaa (sf)

Cl. B-1, Assigned (P)Aa2 (sf)

Cl. B-2, Assigned (P)A2 (sf)

Cl. B-3, Assigned (P)Baa2 (sf)

Cl. B-4, Assigned (P)Ba1 (sf)

Cl. B-5, Assigned (P)B2 (sf)

RATINGS RATIONALE

Summary Credit Analysis and Rating Rationale

Moody's expected cumulative net loss on the aggregate pool is 0.60% in a base scenario and reaches 6.95% 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 overall Representation & Warranty (R&W) framework.

Our ratings on the certificates take into consideration 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 representations and warranties (R&W) framework of the transaction.

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 (sf) 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 (sf) loss expectations for non-conforming loans originated by these three originators. Finally, we increased our base case and Aaa (sf) 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 (sf) 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.

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 Prime RMBS" published in November 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The Credit Rating for GS Mortgage-Backed Securities Trust 2019-PJ3 was assigned in accordance with Moody's existing Methodology entitled "Moody's Approach to Rating US Prime RMBS," dated November 15, 2018. Please note that on June 14, 2019, Moody's released a Request for Comment, in which it has requested market feedback on potential revisions to its Methodology for US Prime RMBS. If the revised Methodology is implemented as proposed, the Credit Rating on GS Mortgage-Backed Securities Trust 2019-PJ3 may be negatively or positively affected. Please refer to Moody's Request for Comment, titled "Proposed Update to Moody's Approach to Rating US Prime RMBS", for further details regarding the implications of the proposed Methodology revisions on certain Credit Ratings.

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_1199104.

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

Padma Rajagopal
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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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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