DBRS Assigns Provisional Ratings to PMT Loan Trust 2013-J1 Mortgage Pass-Through Certificates, Series 2013-J1

DBRS, Inc. (DBRS) has assigned the following provisional ratings to the Mortgage Pass-Through Certificates, Series 2013-J1 issued by PMT Loan Trust 2013-J1 (the Trust).

-- $ 507.8 million Class A-1ᵉ rated at AAA (sf)
-- $ 253.9 million Class A-2 rated at AAA (sf)
-- $ 253.9 million Class A-3 rated at AAA (sf)
-- $ 253.9 million Class A-4ᵉ rated at AAA (sf)
-- $ 253.9 million Class A-5ᵉ rated at AAA (sf)
-- $ 253.9 million Class A-6ᵉ rated at AAA (sf)
-- $ 253.9 million Class A-7ᵉ rated at AAA (sf)
-- $ 507.8 million Class A-8ᵉ rated at AAA (sf)
-- $ 253.9 million Class A-IO1* rated at AAA (sf)
-- $ 253.9 million Class A-IO2* rated at AAA (sf)
-- $ 253.9 million Class A-IO3* rated at AAA (sf)
-- $ 507.8 million Class A-IO* rated at AAA (sf)

• Denotes interest only class; the class balance represents a notional amount.
  ᵉ Denotes exchangeable certificates that can be exchanged for combinations of initial exchangeable certificates as specified in the offering documents.

The AAA (sf) ratings on the Certificates reflect 7.75% of credit enhancement provided by subordination. Other than the specified classes above, DBRS does not rate any other classes in this transaction.

The Certificates are backed by 691 prime residential mortgage loans with a total principal balance of $550,462,191 as of the Cut-off Date (September 1, 2013). With respect to 70.7% of the pool, PennyMac Corp. (“PennyMac” or the “Seller”) purchased the mortgage loans (“Group 1 Loans”) from Bank of America, National Association, who had acquired these loans from various originators through its jumbo whole loan purchase program. 29.3% of the mortgage loans (“Group 2 Loans”) were acquired by PennyMac from various originators through its jumbo whole loan funding program. The loans will be serviced by PennyMac Loan Services, LLC (the “Servicer”). Citibank, N.A. will act as the Securities Administrator and Fiscal Agent. Christiana Trust, a division of Wilmington Savings Fund Society, FSB will serve as trustee. The transaction employs a senior-subordinate shifting-interest cash flow structure that is enhanced from a pre-crisis structure.

The ratings reflect transactional strengths that include high quality underlying assets, well qualified borrowers, satisfactory third-party due diligence review and traditional life-time representations and warranties.

The ratings on the Certificates also reflect challenges such as the limited operating and performance history of PennyMac as well as the weak financial strength of certain originators and the Seller and Servicer. DBRS addresses these challenges and provides certain mitigating factors in its pre-sale report.

With respect to the representations and warranties framework, although the transaction employs a strong standard which includes automatic review of seriously delinquent loans, mandatory arbitration, traditional representations and warranties framework with no sunset provisions and a Seller backstop for representations and warranties on the Group 1 Loans, the limited operating history and the weak financial strength of certain originators and the Seller still demand additional penalties and credit enhancement protections. To capture the perceived weaknesses, DBRS adjusted downward the origination score of the loans to account for the potential inability to fulfill repurchase obligations. Such adjustment resulted in increases in default and loss assumptions for the transaction.

The full description of the strengths, challenges and mitigating factors are detailed in the related pre-sale report.

Note:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are:
• RMBS Insight: U.S. Residential Mortgage-Backed Securities Loss Model and Rating Methodology
• Unified Interest Rate Model for U.S. RMBS Transactions
• Third-Party Due Diligence Criteria for U.S. RMBS Transactions
• Representations and Warranties Criteria for U.S. RMBS Transactions
• Legal Criteria for U.S. Structured Finance Transactions

The full report providing additional analytical detail is available by clicking on the link or by contacting us at info@dbrs.com.

The Rule 17g-7 Report of Representations and Warranties is hereby incorporated by reference and can be found by clicking on the link or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.