New York, December 12, 2017 -- Moody's Investors Service has assigned provisional ratings to 19 classes
of residential mortgage-backed securities (RMBS) issued by J.P.
Morgan Mortgage Trust 2017-6 (JPMMT 2017-6). The
ratings range from (P)Aaa (sf) to (P)B3 (sf).
The certificates are backed by 1,443 30-year, fully-amortizing
fixed rate mortgage loans with a total balance of $883,819,918
as of December 1, 2017 cut-off date. Similar to prior
JPMMT transactions, JPMMT 2017-6 includes conforming fixed-rate
mortgage loans originated by JPMorgan Chase Bank, N. A.
(Chase) and LoanDepot, and underwritten to the government sponsored
enterprises (GSE) guidelines in addition to prime jumbo non-conforming
mortgages purchased by JPMMAC from various originators and aggregators.
JPMorgan Chase Bank, N.A. and LoanDepot, will
be the servicers on the conforming loans originated by JPMorgan Chase
and LoanDepot, respectively, while Shellpoint Mortgage Servicing,
LoanDepot, USAA, Guaranteed Rate, PHH Mortgage,
First Republic Bank, TIAA, FSB and Johnson Bank will be the
servicers on the prime jumbo loans. Wells Fargo Bank, N.A.
will be the master servicer and securities administrator. U.S.
Bank 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 and
a senior and subordination floor.
The complete rating actions are as follows:
Issuer: J.P. Morgan Mortgage Trust 2017-6
Cl. A-1, Assigned (P)Aaa (sf)
Cl. A-2, Assigned (P)Aaa (sf)
Cl. A-3, Assigned (P)Aaa (sf)
Cl. A-4, Assigned (P)Aaa (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. A-11, Assigned (P)Aaa (sf)
Cl. A-12, Assigned (P)Aaa (sf)
Cl. A-13, Assigned (P)Aa1 (sf)
Cl. A-14, Assigned (P)Aa1 (sf)
Cl. B-1, Assigned (P)Aa3 (sf)
Cl. B-2, Assigned (P)A2 (sf)
Cl. B-3, Assigned (P)Baa3 (sf)
Cl. B-4, Assigned (P)Ba2 (sf)
Cl. B-5, Assigned (P)B3 (sf)
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expected cumulative net loss on the aggregate pool is 0.45%
in a base scenario and reaches 5.35% at a stress level consistent
with the 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 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 originator assessments and the financial
strength of Representation & Warranty (R&W) providers.
We base our provisional ratings on the certificates on the credit quality
of the mortgage loans, the structural features of the transaction,
our assessments of the aggregators, originators and servicers,
the strength of the third party due diligence and the representations
and warranties (R&W) framework of the transaction.
Collateral Description
JPMMT 2017-6 is a securitization of a pool of 1,443 30-year,
fully-amortizing mortgage loans with a total balance of $883,819,918
as of the cut-off date, with a weighted average (WA) remaining
term to maturity of 357 months, and a WA seasoning of 3 months.
The borrowers in this transaction have high FICO scores and sizeable equity
in their properties. The WA current FICO score is 771 and the WA
original combined loan-to-value ratio (CLTV) is 71.8%.
The characteristics of the loans underlying the pool are generally comparable
to other JPMMT transactions backed by 30-year mortgage loans that
we have rated.
In this transaction, 55.2% of the pool by loan balance
was underwritten by Chase and LoanDepot to Fannie Mae's and Freddie Mac's
guidelines (conforming loans). Moreover, the conforming loans
in this transaction have a high average current loan balance at $536,992.
The higher conforming loan balance of loans in JPMMT 2017-6 is
attributable to the greater amount of properties located in high-cost
areas, such as the metro areas of New York City, Los Angeles
and San Francisco. LoanDepot contributes approximately 12.5%
of the mortgage loans in the pool. The remaining originators each
account for less than 10% of the principal balance of the loans
in the pool and provide R&W to the transaction.
Third-party Review and Reps & Warranties
Four third party review (TPR) firms verified the accuracy of the loan-level
information that the sponsor gave us. These firms conducted detailed
credit, collateral, and regulatory 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 cured and disclosed. We did
not make any adjustments to our expected or Aaa loss levels due to the
TPR results.
JPMMT 2017-6's R&W framework is in line with 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), who is the R&W
provider for approximately 48.6% (by loan balance) of the
loans, is the strongest R&W provider. We have made no
adjustments on the Chase loans in the pool, as well as loans originated
by TIAA, FSB and First Republic Bank. In contrast,
the rest of the R&W providers are unrated and/or financially weaker
entities. Moreover, JPMMAC will not backstop any R&W
providers who may become financially incapable of repurchasing mortgage
loans. We made an adjustment for these loans in our analysis to
account for this risk.
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. backstops all
validated R&W violations through a combination of enforcement and
insolvency guarantees.
Trustee and Master Servicer
The transaction trustee is U.S. Bank National Association.
The custodian's functions will be performed by Wells Fargo Bank,
N.A. and JP Morgan Chase Bank. The paying agent and
cash management functions will be performed by Wells Fargo Bank,
N.A., rather than the trustee. In addition,
Wells Fargo, as Master Servicer, is responsible for servicer
oversight, and termination of servicers and for the appointment
of successor servicers. In addition, Wells Fargo is committed
to act as successor if no other successor servicer can be found.
We assess Wells Fargo as an SQ1 (strong) master servicer of residential
loans.
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 0.75% 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 0.55% of the original pool balance, those
tranches do not receive principal distributions. Principal those
tranches would have received are 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 writedown 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.
Other Considerations
Similar to recent JPMMT transactions, extraordinary trust expenses
in the JPMMT 2017-6 transaction are deducted from Net WAC as opposed
to available distribution amount. We believe there is a very low
likelihood that the rated certificates in JPMMT 2017-6 will incur
any losses from extraordinary expenses or indemnification payments from
potential future lawsuits against key deal parties. First,
all of the loans are prime quality Qualified Mortgages originated under
a regulatory environment that requires tighter originations controls than
pre-crisis, thus reducing the likelihood that the loans have
defects that could form the basis of a lawsuit. Second, the
transaction has reasonably well defined processes in place to identify
loans with defects on an ongoing basis. In this transaction,
an independent breach reviewer (Pentalpha Surveillance, LLC),
named at closing must review loans for breaches of representations and
warranties when certain clearly defined triggers have been breached which
reduces the likelihood that parties will be sued for inaction.
Third, the issuer has disclosed the results of a credit, compliance
and valuation review of 100% of the mortgage loans by independent
third parties (AMC, Inglet Blair, Opus and Clayton Services
LLC).
Finally, the performance of past JPMMT transactions have been well
within expectation.
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 February 2015. 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_1104206.
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.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
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 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.
Sonny Weng
Vice President - Senior 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
Todd Swanson
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
