NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to rate J.P. Morgan Mortgage Trust 2015-6 (JPMMT 2015-6) as follows:
--$293,142,000 class A-3 exchangeable certificates 'AAAsf'; Outlook Stable;
--$293,142,000 class A-4 exchangeable certificates 'AAAsf'; Outlook Stable;
--$219,857,000 class A-5 exchangeable certificates 'AAAsf'; Outlook Stable;
--$219,857,000 class A-6 certificates 'AAAsf'; Outlook Stable;
--$73,285,000 class A-7 exchangeable certificates 'AAAsf'; Outlook Stable;
--$73,285,000 class A-8 exchangeable certificates 'AAAsf'; Outlook Stable;
--$59,150,000 class A-9 exchangeable certificates 'AAAsf'; Outlook Stable;
--$59,150,000 class A-10 certificates 'AAAsf'; Outlook Stable;
--$14,135,000 class A-11 exchangeable certificates 'AAAsf'; Outlook Stable;
--$14,135,000 class A-12 certificates 'AAAsf'; Outlook Stable;
--$293,142,000 class A-X-3 notional exchangeable certificates 'AAAsf'; Outlook Stable;
--$219,857,000 class A-X-4 notional certificates 'AAAsf'; Outlook Stable;
--$73,285,000 class A-X-5 notional exchangeable certificates 'AAAsf'; Outlook Stable;
--$59,150,000 class A-X-6 notional certificates 'AAAsf'; Outlook Stable
--$14,135,000 class A-X-7 notional certificates 'AAAsf'; Outlook Stable.
Fitch will not be rating the following certificates in JPMMT 2015-6:
--$321,422,000 class A-1 exchangeable certificates;
--$321,422,000 class A-2 exchangeable certificates;
--$28,280,000 class A-13 exchangeable certificates;
--$28,280,000 class A-14 certificates;
--$321,422,000 class A-X-1 notional certificates;
--$321,422,000 class A-X-2 notional exchangeable certificates;
--$28,280,000 class A-X-8 notional certificates;
--$6,533,000 class B-1 certificates;
--$6,380,000 class B-2 certificates;
--$4,138,000 class B-3 certificates;
--$3,449,000 class B-4 certificates;
--$2,931,938 class B-5 certificates.
KEY RATING DRIVERS
High Quality Fixed-Rate Mortgages: The collateral pool consists of 30-year fully amortizing fixed-rate mortgages (FRMs) to borrowers with strong credit profiles, low leverage and sizable liquid reserves. More than 35% of the pool was originated by First Republic Bank (FRB) and Primary Capital Advisors, LLC (Primary Capital), which Fitch considers to be above-average originators of prime jumbo product. The remaining loans were originated by various originators. Third-party, loan-level due diligence was conducted on 100% of the pool with minimal findings, indicating strong underwriting controls.
Slight Geographic Concentration: The pool's primary concentration risk is California, where 38.5% of the properties are located. In addition, 19.6% of the properties are located in the San Francisco metropolitan statistical areas (MSAs). The pool's regional concentration, which has improved compared to more recently rated JPMMT transaction, resulted in an additional penalty of approximately 2% 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 45 basis points (bps) at the 'AAAsf' level.
Tier 3 Representation and Warranty Framework: While the transaction benefits from JPMCB ('A+/F1'/Outlook Stable) and FRB ('A-/F1'/Outlook Stable) 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.
Fitch's analysis incorporates a sensitivity analysis to demonstrate how the ratings would react to steeper market value declines (MVDs) than assumed at the MSA level. 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 may be considered in the surveillance of the transaction. Two sets of sensitivity analyses were conducted at the state and national levels to assess the effect of higher MVDs for the subject pool.
This defined stress sensitivity analysis demonstrates 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 8.3%. As shown in the table to the right, the analysis indicates that 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 2015-6', 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 (Opus), Inglet Blair, LLC, American Mortgage Consultants (AMC), and Clayton Holdings, LLC (Clayton) on 62.8%, 20.4%, 8.8% and 8.1% of the loans in the collateral pool, respectively. 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. While the diligence results showed minimal findings, some exceptions were noted. To account for these differences, Fitch adjusted the DTI for one loan and the original appraisal value for two loans to derive its loss expectations, which did not have a material impact on the agency's initial projections. Fitch believes the overall results of the review generally reflected strong underwriting controls.
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 2015-6 (US RMBS)
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14
Criteria for Interest Rate Stresses in Structured Finance Transactions
and Covered Bonds (pub. 19 Dec 2014)
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
U.S. RMBS Cash Flow Analysis Criteria (pub. 06 Apr 2015)
U.S. RMBS Loan Loss Model Criteria (pub. 03 Aug 2015)
U.S. RMBS Master Rating Criteria (pub. 01 Oct 2015)
Dodd-Frank Rating Information Disclosure Form