DBRS Morningstar Finalizes Provisional Ratings on J.P. Morgan Mortgage Trust 2020-5

DBRS, Inc. (DBRS Morningstar) finalized the following provisional ratings on the Mortgage Pass-Through Certificates, Series 2020-5 (the Certificates) issued by J.P. Morgan Mortgage Trust 2020-5:

-- $704.9 million Class A-1 at AAA (sf)
-- $659.9 million Class A-2 at AAA (sf)
-- $556.2 million Class A-3 at AAA (sf)
-- $556.2 million Class A-3-A at AAA (sf)
-- $556.2 million Class A-3-X at AAA (sf)
-- $417.1 million Class A-4 at AAA (sf)
-- $417.1 million Class A-4-A at AAA (sf)
-- $417.1 million Class A-4-X at AAA (sf)
-- $139.0 million Class A-5 at AAA (sf)
-- $139.0 million Class A-5-A at AAA (sf)
-- $139.0 million Class A-5-X at AAA (sf)
-- $331.7 million Class A-6 at AAA (sf)
-- $331.7 million Class A-6-A at AAA (sf)
-- $331.7 million Class A-6-X at AAA (sf)
-- $224.5 million Class A-7 at AAA (sf)
-- $224.5 million Class A-7-A at AAA (sf)
-- $224.5 million Class A-7-X at AAA (sf)
-- $85.4 million Class A-8 at AAA (sf)
-- $85.4 million Class A-8-A at AAA (sf)
-- $85.4 million Class A-8-X at AAA (sf)
-- $41.7 million Class A-9 at AAA (sf)
-- $41.7 million Class A-9-A at AAA (sf)
-- $41.7 million Class A-9-X at AAA (sf)
-- $97.3 million Class A-10 at AAA (sf)
-- $97.3 million Class A-10-A at AAA (sf)
-- $97.3 million Class A-10-X at AAA (sf)
-- $103.7 million Class A-11 at AAA (sf)
-- $103.7 million Class A-11-X at AAA (sf)
-- $103.7 million Class A-11-A at AAA (sf)
-- $103.7 million Class A-11-AI at AAA (sf)
-- $103.7 million Class A-11-B at AAA (sf)
-- $103.7 million Class A-11-BI at AAA (sf)
-- $103.7 million Class A-12 at AAA (sf)
-- $103.7 million Class A-13 at AAA (sf)
-- $45.0 million Class A-14 at AAA (sf)
-- $45.0 million Class A-15 at AAA (sf)
-- $594.1 million Class A-16 at AAA (sf)
-- $110.8 million Class A-17 at AAA (sf)
-- $704.9 million Class A-X-1 at AAA (sf)
-- $704.9 million Class A-X-2 at AAA (sf)
-- $103.7 million Class A-X-3 at AAA (sf)
-- $45.0 million Class A-X-4 at AAA (sf)
-- $14.2 million Class B-1 at AA (sf)
-- $14.2 million Class B-1-A at AA (sf)
-- $14.2 million Class B-1-X at AA (sf)
-- $12.7 million Class B-2 at A (sf)
-- $12.7 million Class B-2-A at A (sf)
-- $12.7 million Class B-2-X at A (sf)
-- $8.2 million Class B-3 at BBB (sf)
-- $8.2 million Class B-3-A at BBB (sf)
-- $8.2 million Class B-3-X at BBB (sf)
-- $3.8 million Class B-4 at BB (sf)
-- $1.9 million Class B-5 at B (sf)
-- $35.2 million Class B-X at BBB (sf)
-- $1.9 million Class B-5-Y at B (sf)

Classes A-3-X, A-4-X, A-5-X, A-6-X, A-7-X, A-8-X, A-9-X, A-10-X, A-11-X, A-11-AI, A-11-BI, A-X-1, A-X-2, A-X-3, A-X-4, B-1-X, B-2-X, B-3-X, and B-X are interest-only certificates. The class balances represent notional amounts.

Classes A-1, A-2, A-3, A-3-A, A-3-X, A-4, A-4-A, A-4-X, A-5, A-5-A, A-5-X, A-6, A-7, A-7-A, A-7-X, A-8, A-9, A-10, A-11-A, A-11-AI, A-11-B, A-11-BI, A-12, A-13, A-14, A-16, A-17, A-X-2, A-X-3, B-1, B-2, B-3, B-X, B-5-Y, B-6-Y, and B-6-Z are exchangeable certificates. These classes can be exchanged for combinations of base depositable certificates as specified in the offering documents.

Classes A-2, A-3, A-3-A, A-4, A-4-A, A-5, A-5-A, A-6, A-6-A, A-7, A-7-A, A-8, A-8-A, A-9, A-9-A, A-10, A-10-A, A-11, A-11-A, A-11-B, A-12, and A-13 are super-senior certificates. These classes benefit from additional protection from the senior support certificates (Classes A-14 and A-15) with respect to loss allocation.

The AAA (sf) ratings on the Certificates reflect 6.00% of credit enhancement provided by subordinated certificates. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 4.10%, 2.40%, 1.30%, 0.80%, and 0.55% of credit enhancement, respectively.

Other than the specified classes above, DBRS Morningstar does not rate any other classes in this transaction.

This securitization is a portfolio of first-lien fixed-rate prime residential mortgages funded by the issuance of the Certificates. The Certificates are backed by 944 loans with a total principal balance of $749,907,343 as of the Cut-Off Date (July 1, 2020).

The pool consists of fully amortizing fixed-rate mortgages with original terms to maturity of up to 30 years. Approximately 20.0% of the loans in the pool are conforming mortgage loans predominantly originated by United Shore Financial Services, LLC doing business as (dba) United Wholesale Mortgage and Shore Mortgage (USFS), loanDepot.com, LLC (loanDepot), and Quicken Loans, LLC (Quicken), which were eligible for purchase by Fannie Mae or Freddie Mac. Details on the underwriting of conforming loans can be found in the Key Probability of Default Drivers section of the presale.

The originators for the aggregate mortgage pool are USFS (53.0%), loanDepot (8.7%), and Quicken (8.6%). Also, approximately 6.5% of the loans by balance were acquired by the Seller from MaxEx Clearing LLC. The mortgage loans will be serviced or subserviced by Cenlar FSB (Cenlar; 59.4%), Shellpoint Mortgage Servicing (29.0%), Quicken (8.6%), Johnson Bank (1.6%), and Nationstar Mortgage LLC dba Mr. Cooper (Nationstar; 1.4%). For Cenlar-subserviced loans, the Servicers include loanDepot and USFS. For Nationstar subserviced mortgage loans, the Servicer is United Services Automobile Association. For this transaction, the servicing fee payable for mortgage loans serviced by USFS, JPMorgan Chase Bank, National Association, and loanDepot is composed of three separate components: the aggregate base servicing fee, the aggregate delinquent servicing fee, and the aggregate additional servicing fee. These fees vary based on the delinquency status of the related loan and will be paid from interest collections before distribution to the securities.

Nationstar will act as the Master Servicer. Citibank, N.A. (rated AA (low) with a Stable trend by DBRS Morningstar) will act as Securities Administrator and Delaware Trustee. Wells Fargo Bank, N.A. (rated AA with a Negative trend by DBRS Morningstar) will act as Custodian. 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.

As of the Cut-Off Date, no borrower within the pool has entered into a Coronavirus Disease (COVID-19)-related forbearance plan with a servicer. In the event a borrower requests or enters into a coronavirus-related forbearance plan after the Cut-Off Date but prior to the Closing Date, the Mortgage Loan Seller will remove such loan from the mortgage pool and remit the related Closing Date substitution amount. Loans that enter a coronavirus-related forbearance plan after the Closing Date will remain in the pool.

Coronavirus Pandemic Impact
The coronavirus pandemic and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many consumers. DBRS Morningstar anticipates that delinquencies may continue to rise in the coming months for many residential mortgage-backed security (RMBS) asset classes, some meaningfully.

The prime mortgage sector is a traditional RMBS asset class that consists of securitizations backed by pools of residential home loans originated to borrowers with prime credit. Generally, these borrowers have decent FICO scores, reasonable equity, and robust income and liquid reserves.

As a result of the coronavirus, DBRS Morningstar expects increased delinquencies, loans on forbearance plans, and a potential near-term decline in the values of the mortgaged properties. Such deteriorations may adversely affect borrowers’ ability to make monthly payments, refinance their loans, or sell properties in an amount sufficient to repay the outstanding balance of their loans.

In connection with the economic stress assumed under its moderate scenario (see Global Macroeconomic Scenarios: July Update, published on July 22, 2020), for the prime asset class, DBRS Morningstar applies more severe market value decline (MVD) assumptions across all rating categories than what it previously used. Such MVD assumptions are derived through a fundamental home price approach based on the forecast unemployment rates and GDP growth outlined in the aforementioned moderate scenario. In addition, for pools with loans on forbearance plans, DBRS Morningstar may assume higher loss expectations above and beyond the coronavirus assumptions. Such assumptions translate to higher expected losses on the collateral pool and correspondingly higher credit enhancement.

In the prime asset class, while the full effect of the coronavirus may not occur until a few performance cycles later, DBRS Morningstar generally believes that this sector should have low intrinsic credit risk. Within the prime asset class, loans originated to (1) self-employed borrowers or (2) higher loan-to-value (LTV) ratio borrowers may be more sensitive to economic hardships resulting from higher unemployment rates and lower incomes. Self-employed borrowers are potentially exposed to more volatile income sources, which could lead to reduced cash flows generated from their businesses. Higher LTV borrowers, with lower equity in their properties, generally have fewer refinance opportunities and therefore slower prepayments. In addition, certain pools with elevated geographic concentrations in densely populated urban metropolitan statistical areas may experience additional stress from extended lockdown periods and the slowdown of the economy.

For more information regarding rating methodologies and the coronavirus, please see the following DBRS Morningstar press releases and commentary: "DBRS Morningstar Provides Update on Rating Methodologies in Light of Measures to Contain Coronavirus Disease (COVID-19)," dated March 12, 2020; "DBRS Morningstar Global Structured Finance Rating Methodologies and Coronavirus Disease (COVID-19)," dated March 20, 2020; and “Global Macroeconomic Scenarios: July Update,” dated July 22, 2020.

The ratings reflect transactional strengths that include high-quality credit attributes, well-qualified borrowers, a satisfactory third-party due-diligence review, structural enhancements, and 100% current loans.

The ratings reflect transactional challenges that include weaknesses in the R&W framework, entities lacking financial strength or securitization history, and servicers' financial capabilities.

The full description of the strengths, challenges, and mitigating factors is detailed in the related rating report.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

The principal methodology is RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology (April 1, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

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

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277