DBRS Assigns Provisional Ratings to Citigroup Mortgage Loan Trust 2014-J1, Mortgage Pass-Through Certificates, Series 2014-J1

DBRS has today assigned the following provisional ratings to the Mortgage Pass-Through Certificates, Series 2014-1 (the Certificates) issued by Citigroup Mortgage Loan Trust 2014-J1 (the Trust):

-- $197.2 million Class A-1 at AAA (sf)
-- $197.2 million Class A-1-IO at AAA (sf)
-- $197.2 million Class A-1W at AAA (sf)
-- $6.9 million Class A-2 at AAA (sf)
-- $6.9 million Class A-2-IO at AAA (sf)
-- $6.9 million Class A-2W at AAA (sf)
-- $204.1 million Class A at AAA (sf)
-- $204.1 million Class A-IO at AAA (sf)
-- $204.1 million Class AW at AAA (sf)
-- $2.9 million Class B-1 at AA (sf)
-- $2.7 million Class B-2 at A (sf)
-- $3.1 million Class B-3 at BBB (sf)
-- $2.3 million Class B-4 at BB (sf)

Class A-1-IO, Class A-2-IO and Class A-IO are interest-only certificates. The class balances represent notional amounts.

Class A-1W, Class A-2W, Class A, Class A-IO and Class AW are exchangeable certificates. These classes can be exchanged for combinations of base certificates as specified in the offering documents.

Class A-1 and Class A-1-IO are super senior certificates. These classes benefit from additional protection from senior support certificates (Class A-2 and Class A-2-IO) with respect to loss allocation.

The AAA (sf) ratings in this transaction reflect the 6.35% of credit enhancement provided by subordination. The AA (sf), A (sf), BBB (sf) and BB (sf) ratings reflect 5.00%, 3.75%, 2.35% and 1.30% of credit enhancement, respectively. Other than the specified classes above, DBRS does not rate any other classes in this transaction.

The certificates are backed by 285 loans with a total principal balance of $217,985,825 as of the Cut-Off Date (June 1, 2014). The mortgage loans were acquired by Citigroup Global Markets Realty Corp. (Citi). The originators for the mortgage pool are Stearns Lending, Inc. (33.5%), Nationstar Mortgage LLC (Nationstar 30.3%), Freedom Mortgage Corporation ( 11.3%), and various other originators each comprising less than 5% of the mortgage loans.

The loans will be serviced by Nationstar (71.1%), Fay Servicing, LLC (23.0%), Fifth Third Mortgage Company (Fifth Third, 3.2%) and PennyMac Corp. (2.8%). Deutsche Bank National Trust Company will act as the Trust Administrator and Custodian. 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 and satisfactory third-party due diligence review. Compared with other recently issued prime jumbo transactions, this portfolio contains a very strong FICO score, and combined loan-to-value and debt-to-income ratios with much less barbelled distributions. In addition, the pool contains 5.1% 15-year mortgages, and no interest only loans.

The originators provide traditional life-time representations and warranties to the Trust. The enforcement mechanism for breaches of representations includes automatic breach reviews by a third-party reviewer for any seriously delinquent loans or any loans that incur loss upon liquidation, and the resolution of disputes is ultimately subject to determination in an arbitration proceeding. The loans (except for Fifth Third-originated loans) also benefit from representations and warranties back-stopped by the sponsor, Citi, a wholly owned subsidiary of Citigroup Inc. (DBRS rates Citigroup Inc. at A (low) Stable), in the event of an originator’s bankruptcy or insolvency proceeding and if the originator fails to complete an effective remedy. However, such backstop is subject to certain sunset provisions that give consideration to prior loan performance.

DBRS views the representations and warranties features for this transaction to be consistent with recent DBRS-rated prime jumbo transactions. Although the transaction employs a strong standard which includes automatic review of seriously delinquent loans, mandatory arbitration and a sponsor backstop for representations and warranties, the limited operating history and the weak financial strength of certain originators and the sunset provisions of the sponsor backstop 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.

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

The applicable methodologies are RMBS Insight 1.2: U.S. Residential Mortgage-Backed Securities 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; and Legal Criteria for U.S. Structured Finance Transactions, which can be found on our website under Methodologies.

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.

These ratings are endorsed by DBRS Ratings Limited for use in the European Union.