DBRS Morningstar Finalizes Provisional Ratings on GS Mortgage-Backed Securities Trust 2021-PJ3

DBRS, Inc. (DBRS Morningstar) finalized the following provisional ratings on the Mortgage Pass-Through Certificates, Series 2021-PJ3 (the Certificates) issued by GS Mortgage-Backed Securities Trust 2021-PJ3:

-- $375.4 million Class A-1 at AAA (sf)
-- $375.4 million Class A-2 at AAA (sf)
-- $47.5 million Class A-3 at AAA (sf)
-- $47.5 million Class A-4 at AAA (sf)
-- $281.5 million Class A-5 at AAA (sf)
-- $281.5 million Class A-6 at AAA (sf)
-- $93.8 million Class A-7 at AAA (sf)
-- $93.8 million Class A-8 at AAA (sf)
-- $422.9 million Class A-9 at AAA (sf)
-- $422.9 million Class A-10 at AAA (sf)
-- $422.9 million Class A-X-1 at AAA (sf)
-- $375.4 million Class A-X-2 at AAA (sf)
-- $47.5 million Class A-X-3 at AAA (sf)
-- $281.5 million Class A-X-5 at AAA (sf)
-- $93.8 million Class A-X-7 at AAA (sf)
-- $5.1 million Class B-1 at AA (sf)
-- $5.1 million Class B-2 at A (sf)
-- $3.8 million Class B-3 at BBB (sf)
-- $1.3 million Class B-4 at BB (sf)
-- $1.3 million Class B-5 at B (sf)

Classes A-X-1, A-X-2, A-X-3, A-X-5, and A-X-7 are interest-only certificates. The class balances represent notional amounts.

Classes A-1, A-2, A-4, A-6, A-8, A-9, A-10, and A-X-2 are exchangeable certificates. These classes can be exchanged for combinations of exchange certificates as specified in the offering documents.

Classes A-1, A-2, A-5, A-6, A-7, and A-8 are super-senior certificates. These classes benefit from additional protection from the senior support certificates (Classes A-3 and A-4) with respect to loss allocation.

The AAA (sf) ratings on the Certificates reflect 4.25% of credit enhancement provided by subordinated certificates. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 3.10%, 1.95%, 1.10%, 0.80%, and 0.50% of credit enhancement, respectively.

Other than the classes specified 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 447 loans with a total principal balance of $441,623,829 as of the Cut-Off Date (March 1, 2021).

The pool consists of fully amortizing fixed-rate mortgages with original terms to maturity of 30 years and a weighted-average loan age of two months. Approximately 99.9% of the pool are traditional, nonagency, prime jumbo mortgage loans. The remaining 0.1% of the pool are conforming, high-balance mortgage loans that were underwritten using an automated underwriting system designated by Fannie Mae or Freddie Mac and were eligible for purchase by such agencies. Details on the underwriting of conforming loans can be found in the Key Probability of Default Drivers section of the related presale report.

The originators for the mortgage pool are Guaranteed Rate (36.2%), CrossCountry Mortgage, LLC (32.9%), and various other originators, each comprising less than 15.0% of the mortgage loans. Goldman Sachs Mortgage Company is the Sponsor and the Mortgage Loan Seller of the transaction. For certain originators, the related loans were sold to MAXEX Clearing LLC (5.5%) and were subsequently acquired by the Mortgage Loan Seller.

NewRez LLC (doing business as Shellpoint Mortgage Servicing) will service the mortgage loans within the pool. Wells Fargo Bank, N.A. (rated AA with a Negative trend by DBRS Morningstar) 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) File Reviewer.

The transaction employs a senior-subordinate, shifting-interest cash flow structure that is enhanced from a precrisis structure.

For this transaction, as permitted by the Coronavirus Aid, Relief, and Economic Security Act, signed into law on March 27, 2020, four loans (0.7% of the pool) had been granted forbearance plans because the borrowers reported financial hardship related to the Coronavirus Disease (COVID-19) pandemic. These forbearance plans allow temporary payment holidays, followed by repayment once the forbearance period ends. As of the Cut-Off Date, all four loans satisfied their forbearance plans and are current. Furthermore, none of the loans in the pool are on active coronavirus forbearance plans.

Coronavirus Pandemic Impact
The Coronavirus Disease (COVID-19) 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 securities (RMBS) asset classes.

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 has seen increased delinquencies and loans on forbearance plans, and expects 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: March 2021 Update, published on March 17, 2021), for the prime asset class, DBRS Morningstar applies more severe market value decline (MVD) assumptions across all rating categories than it previously used. DBRS Morningstar derives such MVD assumptions through a fundamental home price approach based on the forecasted unemployment rates and GDP growth outlined in the 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 ratio (LTV) 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 (MSAs) 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: March 2021 Update, published on March 17, 2021.

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

The ratings reflect transactional weaknesses that include their R&W framework, entities lacking financial strength or securitization history, servicer’s financial capabilities, and borrowers on forbearance plans.

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 can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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].

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