DBRS Assigns Provisional Ratings to J.P. Morgan Mortgage Trust 2014-IVR3 Mortgage Pass-Through Certificates, Series 2014-IVR3

DBRS has today assigned the following provisional ratings to the Mortgage Pass-Through Certificates, Series 2014-IVR3 issued by J.P. Morgan Mortgage Trust 2014-IVR3 (the Trust):

-- $35.2 million Class 1-A-1 at AAA (sf)
-- $2.3 million Class 1-A-2 at AAA (sf)
-- $35.2 million Class 1-A-IO at AAA (sf)
-- $241.7 million Class 2-A-1 at AAA (sf)
-- $15.8 million Class 2-A-2 at AAA (sf)
-- $241.7 million Class 2-A-IO at AAA (sf)
-- $134.2 million Class 3-A-1 at AAA (sf)
-- $8.8 million Class 3-A-2 at AAA (sf)
-- $134.2 million Class 3-A-IO at AAA (sf)
-- $26.8 million Class A-M at AAA (sf)
-- $12.6 million Class B-1 at AA (sf)
-- $9.4 million Class B-2 at A (sf)
-- $8.9 million Class B-3 at BBB (sf)
-- $6.8 million Class B-4 at BB (sf)

Class 1-A-IO, Class 2-A-IO and Class 3-A-IO are interest-only certificates. The class balances represent notional amounts.

Class A-M is an exchangeable certificate. This class can be exchanged for a combination of base certificates as specified in the offering documents.

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

The AAA (sf), AA (sf), A (sf), BBB (sf), BB (sf) ratings on the certificates reflect 9.45%, 6.85%, 4.90%, 3.05% and 1.65% 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 551 loans with a total principal balance of $483,562,381 as of the Cut-off Date (September 1, 2014). The collateral pool consists of 100.0% first-lien hybrid adjustable rate mortgages (ARM), of which 8.6% are five-year hybrids, 58.8% are seven-year hybrids and 32.6% are ten-year hybrids. Approximately 23.8% of the loans also have interest-only features.

The mortgage loans were originated or acquired by Flagstar Bank (31.4%), First Republic Bank (25.6%), Opes Advisors, Inc. (11.6%) and various other originators, each comprising less than 10% of the mortgage loans. The loans will be serviced by Pingora Loan Servicing, LLC (31.0%), First Republic (25.6%), Shellpoint mortgage Servicing (22.0%) and various other servicers, each comprising less than 10% of the mortgage loans. For the mortgages serviced by Pingora, substantially all of the servicing duties will be performed through its subservicer Cenlar FSB. For this transaction, Wells Fargo Bank, N.A. will act as the Master Servicer, Securities 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 a satisfactory third-party due diligence review.

Compared to other recent prime jumbo securitizations, the JPMMT 2014-IVR3 pool has a high concentration of loans in California, particularly the San Francisco area. Performance of loans that are highly concentrated in a particular region may be more sensitive to any deterioration in economic conditions or the occurrence of a natural disaster in that region, especially coupled with the adjustable rate nature of the underlying loans, which has a higher likelihood of experiencing payment shock relative to their fixed-rate counterparts. In addition to model-calculated pool asset correlation, which was already elevated, DBRS increased the market value decline assumption for all properties in the San Francisco area by an additional 50% at the AAA-rating level when performing our analysis. DBRS’s given expected losses were then adjusted upward to be able to withstand such sensitivity test. In addition, given the adjustable rate nature of the underlying loans, DBRS also increased expected losses at the AAA-rating level by an additional 10%.

Compared with other post-crisis representations and warranties framework, 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 lifetime representations and warranties standard in other DBRS-rated securitizations. To capture the perceived weaknesses in the representations and warranties framework, DBRS reduced the origination scores for each of the originators in this pool. A lower originator score results in increased default and loss assumptions and provides additional cushions for the rated securities.

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, 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.