DBRS Finalizes Provisional Ratings on J.P. Morgan Mortgage Trust 2017-3

DBRS, Inc. (DBRS) finalized its provisional ratings on the Mortgage Pass-Through Certificates, Series 2017-3 (the Certificates) issued by J.P. Morgan Mortgage Trust 2017-3 as follows:

-- $862.4 million Class 1-A-1 at AAA (sf)
-- $862.4 million Class 1-A-2 at AAA (sf)
-- $807.3 million Class 1-A-3 at AAA (sf)
-- $807.3 million Class 1-A-4 at AAA (sf)
-- $605.5 million Class 1-A-5 at AAA (sf)
-- $605.5 million Class 1-A-6 at AAA (sf)
-- $201.8 million Class 1-A-7 at AAA (sf)
-- $201.8 million Class 1-A-8 at AAA (sf)
-- $158.0 million Class 1-A-9 at AAA (sf)
-- $158.0 million Class 1-A-10 at AAA (sf)
-- $43.8 million Class 1-A-11 at AAA (sf)
-- $43.8 million Class 1-A-12 at AAA (sf)
-- $55.0 million Class 1-A-13 at AAA (sf)
-- $55.0 million Class 1-A-14 at AAA (sf)
-- $862.4 million Class 1-AX-1 at AAA (sf)
-- $862.4 million Class 1-AX-2 at AAA (sf)
-- $807.3 million Class 1-AX-3 at AAA (sf)
-- $605.5 million Class 1-AX-4 at AAA (sf)
-- $201.8 million Class 1-AX-5 at AAA (sf)
-- $158.0 million Class 1-AX-6 at AAA (sf)
-- $43.8 million Class 1-AX-7 at AAA (sf)
-- $55.0 million Class 1-AX-8 at AAA (sf)
-- $93.7 million Class 2-A-1 at AAA (sf)
-- $87.7 million Class 2-A-2 at AAA (sf)
-- $6.0 million Class 2-A-3 at AAA (sf)
-- $93.7 million Class 2-A-4 at AAA (sf)
-- $87.7 million Class 2-A-5 at AAA (sf)
-- $6.0 million Class 2-A-6 at AAA (sf)
-- $93.7 million Class 2-AX-1 at AAA (sf)
-- $87.7 million Class 2-AX-2 at AAA (sf)
-- $6.0 million Class 2-AX-3 at AAA (sf)
-- $14.2 million Class B-1 at AA (sf)
-- $16.3 million Class B-2 at A (sf)
-- $11.7 million Class B-3 at BBB (sf)
-- $8.6 million Class B-4 at BB (sf)
-- $5.6 million Class B-5 at B (sf)

Classes 1-AX-1, 1-AX-2, 1-AX-3, 1-AX-4, 1-AX-5, 1-AX-6, 1-AX-7, 1-AX-8, 2-AX-1, 2-AX-2 and 2-AX-3 are interest-only certificates. The class balances represent notional amounts.

Classes 1-A-1, 1-A-2, 1-A-3, 1-A-4, 1-A-5, 1-A-7, 1-A-8, 1-A-9, 1-A-11, 1-A-13, 1-AX-2, 1-AX-3, 1-AX-5, 2-A-1, 2-A-4, 2-A-5, 2-A-6 and 2-AX-1 are exchangeable certificates. These classes can be exchanged for a combination of depositable certificates, as specified in the offering documents.

Classes 1-A-6, 1-A-10, 1-A-12 and 2-A-2 are super-senior certificates. These classes benefit from additional protection from senior support certificates (Classes 1-A-14 and 2-A-3) with respect to loss allocation.

The AAA (sf) ratings on the Certificates reflect the 6.00% of credit enhancement provided by subordinated certificates in the pool. The AA (sf), A (sf), BBB (sf), BB (sf) and B (sf) ratings reflect 4.60%, 3.00%, 1.85%, 1.00% and 0.45% 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 1,483 loans with a total principal balance of $1,017,102,512 as at the Cut-Off Date (August 1, 2017).

The loans are divided into two groups: Pool 1 and Pool 2. Pool 1 (90.2% of the aggregate pool) consists of fully amortizing fixed-rate mortgages (FRMs) with original terms to maturity of 20 years to 30 years, while Pool 2 (9.8% of the aggregate pool) consists of fully amortizing FRMs with original terms to maturity of 15 years.

The originators for the aggregate mortgage pool are JPMorgan Chase Bank, N.A. (JPMCB; rated AA with a Stable trend by DBRS; 22.9%); EverBank (13.4%); Social Finance (9.1%); United Shore Financial Services (9.0%); Quicken Loans Inc. (8.7%); and various other originators, each comprising less than 5.0% of the mortgage loans. Approximately 1.5% of the loans sold to the mortgage loan seller were acquired by MAXEX, LLC, which purchased loans from the related originators or an unaffiliated third party that directly or indirectly purchased such loans from the related originators.

The loans will be serviced or sub-serviced by New Penn Financial, LLC doing business as Shellpoint Mortgage Servicing (52.9%); JPMCB (22.9%); EverBank (13.4%); and various other servicers, each comprising less than 5.0% of the mortgage loans.

Wells Fargo Bank, N.A. (rated AA (high) with a Negative trend by DBRS) will act as the Master Servicer, Securities Administrator and Custodian. U.S. Bank Trust National Association will serve as Delaware Trustee. Pentalpha Surveillance, LLC will serve as the Representations and Warranties (R&W) Reviewer.

The transaction employs a senior-subordinate shifting-interest cash flow structure that is enhanced from a pre-crisis structure. Pool 1 and Pool 2 senior certificates will be backed by collateral from each pool, respectively. The subordinate certificates will be cross-collateralized between the two pools. This is generally known as a Y-structure.

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

This transaction employs an R&W framework that contains certain weaknesses, such as materiality factors, some unrated R&W providers, knowledge qualifiers and sunset provisions that allow for certain R&Ws to expire within three to six years after the Closing Date. The framework is perceived by DBRS to be limiting compared with traditional lifetime R&W standards in certain DBRS-rated securitizations. To capture the perceived weaknesses in the R&W framework, DBRS reduced the originator scores 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 strengths, challenges and mitigating factors is detailed in the related report. Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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

The principal methodologies are RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology, Unified Interest Rate Model for Rating U.S. Structured Finance 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, Assessing U.S. RMBS Pools Under the Ability-to-Repay Rules, Operational Risk Assessment for U.S. RMBS Originators and Operational Risk Assessment for U.S. RMBS Servicers, which can be found on dbrs.com under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

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