DBRS Finalizes Provisional Ratings on J.P. Morgan Mortgage Trust 2014-2 Mortgage Pass-Through Certificates, Series 2014-2

DBRS has today finalized its provisional ratings on the Mortgage Pass-Through Certificates, Series 2014-2 issued by J.P. Morgan Mortgage Trust 2014-2 (the Trust) as follows:

-- $ 171.0 million Class 1-A-1, at AAA (sf)
-- $ 127.6 million Class 1-A-2, at AAA (sf)
-- $ 43.5 million Class 1-A-3, at AAA (sf)
-- $ 23.7 million Class 1-A-4, at AAA (sf)
-- $ 19.8 million Class 1-A-5, at AAA (sf)
-- $ 171.0 million Class 1-A-6, at AAA (sf)
-- $ 171.0 million Class 1-X-1, at AAA (sf)
-- $ 102.4 million Class 2-A-1, at AAA (sf)
-- $ 102.4 million Class 2-A-2, at AAA (sf)
-- $ 102.4 million Class 2-A-3, at AAA (sf)
-- $ 102.4 million Class 2-X-1, at AAA (sf)
-- $ 102.4 million Class 2-X-2, at AAA (sf)

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

Class 1-A-1, Class 1-A-3, Class 1-A-6, Class 2-A-2 and Class 2-A-3 are exchangeable certificates. These classes can be exchanged for combinations of base certificates as specified in the offering documents.

Class 1-A-1, Class 1-A-2, Class 1-A-3, Class 1-A-4, Class 1-A-5, Class 1-A-6, Class 2-A-1, Class 2-A-2 and Class 2-A-3 are super senior certificates. These classes benefit from additional protection from senior support certificates (Class A-M) with respect to loss allocation.

The AAA (sf) ratings on the certificates reflect 10.00% 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 544 loans with a total principal balance of $305,090,507 as of the Cut-off Date (June 1, 2014). The mortgage loans, except one First Citizens Bank and Trust Company loan, were acquired by the JPMorgan Whole Loan Conduit. The originators for the mortgage pool are First Republic Bank (First Republic, 55.1%), JPMorgan Chase Bank, N.A. (JPMCB, 38.2%), and various other originators, each comprising less than 5% of the mortgage loans.

The loans will be serviced by First Republic (55.1%), JPMCB (38.2%), and various other servicers, each comprising less than 5% of the mortgage loans. For this transaction, Wells Fargo Bank, N.A. (Wells Fargo) will act as the Master Servicer and Securities Administrator. 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, a satisfactory third-party due diligence review and strong representations and warranties counterparties, as well as the capabilities of JPMCB and First Republic as Servicers on 93.3% of the mortgage pool. Wells Fargo will serve as Master Servicer, and U.S. Bank National Association will serve as Delaware trustee.

Compared with other post-crisis representations and warranties frameworks, this transaction employs a relatively weak standard, which includes materiality factors, the use of knowledge qualifiers as well as sunset provisions that allow for certain representations to expire within three to six years after the closing date. The framework is perceived by DBRS to be weak and limiting as compared with the traditional life-time representations and warranties standard in previous DBRS-rated securitizations. However, the representations and warranties framework in this transaction, consistent with the recent JPPMT transactions, does show some improvements from the JPMMT 2013-1 transaction with respect to the performance trigger and the definition of fraud as related to the sunset provisions.

To capture the perceived weaknesses in the representations and warranties framework, DBRS adjusted down the origination scores for each of the originators in this pool. In addition, certain originators, whose financial strength assessments by DBRS fall below investment grade and who do not benefit from the Mortgage Loan Seller’s providing representations, received further reduction in their origination scores to account for their potential inability to fulfill their repurchase obligations. Such adjustments resulted in increases in default and loss rates for the entire pool.

The full description of the representations and warranties framework, the mitigation factors and DBRS’s loss adjustments are detailed in the related pre-sale report.

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.

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