NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to rate J.P. Mortgage Loan Trust 2015-5 (JPMMT 2015-5) as follows:
--$150,000,000 class A-1 exchangeable certificates 'AAAsf'; Outlook Stable;
--$266,197,000 class A-2 exchangeable certificates 'AAAsf'; Outlook Stable;
--$60,388,000 class A-3 exchangeable certificates 'AAAsf'; Outlook Stable;
--$31,002,000 class A-4 exchangeable certificates 'AAAsf'; Outlook Stable;
--$58,610,000 class A-5 exchangeable certificates 'AAAsf'; Outlook Stable;
--$107,168,000 class A-6 exchangeable certificates 'AAAsf'; Outlook Stable;
--$55,017,000 class A-7 exchangeable certificates 'AAAsf'; Outlook Stable;
--$104,012,000 class A-8 exchangeable certificates 'AAAsf'; Outlook Stable;
--$150,000,000 class A-1-A exchangeable certificates 'AAAsf'; Outlook Stable;
--$150,000,000 class A-1-X exchangeable notional certificates 'AAAsf'; Outlook Stable;
--$266,197,000 class A-2-A exchangeable certificates 'AAAsf'; Outlook Stable;
--$266,197,000 class A-2-X exchangeable notional certificates 'AAAsf';
--$60,388,000 class A-3-A certificates 'AAAsf'; Outlook Stable;
--$60,388,000 class A-3-X notional certificates 'AAAsf'; Outlook Stable;
--$31,002,000 class A-4-A certificates 'AAAsf'; Outlook Stable;
--$31,002,000 class A-4-X notional certificates 'AAAsf'; Outlook Stable;
--$58,610,000 class A-5-A certificates 'AAAsf'; Outlook Stable;
--$58,610,000 class A-5-X notional certificates 'AAAsf'; Outlook Stable
--$107,168,000 class A-6-A certificates 'AAAsf'; Outlook Stable;
--$107,168,000 class A-6-X notional certificates 'AAAsf'; Outlook Stable;
--$55,017,000 class A-7-A certificates 'AAAsf'; Outlook Stable;
--$55,017,000 class A-7-X notional certificates 'AAAsf'; Outlook Stable;
--$104,012,000 class A-8-A certificates 'AAAsf'; Outlook Stable;
--$104,012,000 class A-8-X notional certificates 'AAAsf'; Outlook Stable;
--$39,661,000 class A-9 certificates 'AAsf'; Outlook Stable;
--$9,304,000 class B-1 certificates 'AAsf'; Outlook Stable;
--$9,303,000 class B-2 certificates 'Asf'; Outlook Stable;
--$5,141,000 class B-3 certificates 'BBBsf'; Outlook Stable;
--$4,162,000 class B-4 certificates 'BBsf'; Outlook Stable.
The $5,876,219 class B-5 certificates will not be rated.
KEY RATING DRIVERS
High Quality Adjustable-Rate Mortgages: The collateral pool consists of five-year, seven-year, and 10-year hybrid adjustable-rate mortgages (ARMs) to borrowers with strong credit profiles, low leverage, and substantial liquid reserves. All of the loans were originated by FRB, which Fitch considers to be an above-average originator of prime jumbo product. Third-party, loan-level due diligence was conducted on 100% of the pool with minimal findings, indicating strong underwriting controls.
Payment Shock Exposure: The pool consists entirely of ARM loans while approximately 63% also have interest-only (IO) features. Loan products that result in periodic changes in a borrower's payment such as ARMs and IOs expose borrowers to payment reset risk. Future rises in interest rates and payment re-amortization after the expiration of interest-only periods can increase monthly payments considerably. To account for this risk, Fitch applied a probability of default (PD) penalty of approximately 1.67x to the ARM loans without IO terms and 1.87x to those with IO features.
High Geographic Concentration: The pool's primary concentration risk is California, where 59.2% of the properties are located. In addition, 2.8% of the properties are located in the pool's top five metropolitan statistical areas (MSA) in California, New York, and Massachusetts. The pool has significant regional concentrations, which resulted in an additional penalty of approximately 1.65x to the pool's lifetime default expectation.
Leakage from Reviewer Expenses: The trust is obligated to reimburse the breach reviewer, Pentalpha Surveillance LLC (Pentalpha), each month for any reasonable out-of-pocket expenses incurred if the company is requested to participate in any arbitration, legal or regulatory actions, proceedings, or hearings. These expenses include Pentalpha's legal fees and other expenses incurred outside its annual fee schedule and are not subject to a cap or certificateholder approval. Furthermore, certificateholders are obligated to pay Pentalpha a termination fee of $140,000 to terminate the contract. While Fitch accounted for the potential additional costs by upwardly adjusting its loss estimation for the pool, Fitch views this construct as adding potentially more ratings volatility than those that do not have this type of provision.
Extraordinary Expense Adjustment: Extraordinary expenses, which include loan file review costs, arbitration expenses for enforcement of the reps, and additional fees of Pentalpha, will be taken out of available funds and not accounted for in the contractual interest owed to the bondholders. This construct can result in principal and interest shortfalls to the bonds starting from the bottom of the capital structure. To account for the risk of these noncredit events reducing subordination, Fitch adjusted its loss expectations upward by 35 basis points (bps) at the 'AAAsf' level, 30 bps at the 'AAsf', 25bps at the 'Asf' and 'BBBsf', and 20 bps at the 'BBsf' level.
Tier 3 Representation and Warranty Framework: While the transaction benefits from JPMCB ('A+'/Outlook Stable/'F1') and FRB ('A-'/Outlook Stable/'F1') as representation and warranty (rep and warranty) providers for the pool, Fitch believes the value of the rep and warranty framework is diluted by the presence of qualifying and conditional language in conjunction with sunset provisions, which reduces lender breach liability. While the agency believes the high credit quality pool and clean diligence results mitigate these risks, Fitch considered the weaker framework in its analysis.
RATING SENSITIVITIES
Fitch's analysis incorporates sensitivity analyses to demonstrate how the ratings would react to steeper market value declines (MVDs) than assumed at both the metropolitan statistical area (MSA) and national levels. The implied rating sensitivities are only an indication of some of the potential outcomes and do not consider other risk factors that the transaction may become exposed to or be considered in the surveillance of the transaction.
Fitch conducted sensitivity analysis determining how the ratings would react to steeper MVDs at the national level. The analysis assumes MVDs of 10%, 20%, and 30%, in addition to the model-projected 8.5% for this pool. The analysis indicates there is some potential rating migration with higher MVDs, compared with the model projection.
Fitch also conducted sensitivities to determine the stresses to MVDs that would reduce a rating by one full category, to non-investment grade, and to 'CCCsf'.
Fitch's stress and rating sensitivity analysis are discussed in its presale report released today J.P. Morgan Mortgage Loan Trust 2015-5, available at 'www.fitchratings.com' or by clicking on the link.
DUE DILIGENCE USAGE
Fitch was provided with due diligence information from Opus Capital Markets Consultants LLC, American Mortgage Consultants, and Inglet Blair. The information covered credit, compliance, and appraisals. Fitch received certifications indicating that the loan-level due diligence was conducted in accordance with its published standards for reviewing loans and in accordance with the independence standards outlined in its criteria. Fitch considered this information in its analysis and based on the findings, did not make any material adjustments to its analysis.
Additional information is available at www.fitchratings.com.
Sources of Information:
In addition to the information sources identified in Fitch's criteria listed below, Fitch's analysis incorporated data tapes, due diligence results, deal structure and legal documents provided on the transaction's 17g5 website available on 'www.structuredfn.com'.
J.P. Morgan Mortgage Trust 2015-5 (US RMBS)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869070
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952
Rating Criteria for U.S. Residential and Small Balance Commercial Mortgage Servicers (pub. 23 Apr 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864368
U.S. RMBS Cash Flow Analysis Criteria (pub. 06 Apr 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863973
U.S. RMBS Loan Loss Model Criteria (pub. 17 Nov 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=810788
U.S. RMBS Master Rating Criteria (pub. 12 Jun 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866607
U.S. RMBS Surveillance and Re-REMIC Criteria (pub. 01 Jun 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866259
Related Research
J.P. Morgan Mortgage Trust 2015-5 - Appendix
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868958
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=988526
ABS Due Diligence Form 15E 1
ABS Due Diligence Form 15E 2
ABS Due Diligence Form 15E 3
ABS Due Diligence Form 15E 4
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=988526
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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