Rating Action:

Shellpoint Mortgage Servicing Moody’s assigns provisional ratings to Prime RMBS issued by J.P. Morgan Mortgage Trust 2017-6

New York, December 12, 2017 — Moody’s Investors Service has assigned provisional ratings to 19 classes of residential mortgage-backed securities (RMBS) issued by J.P. Morgan Mortgage Trust 2017-6 (JPMMT 2017-6). The ratings range from (P)Aaa (sf) to (P)B3 (sf).

The certificates are backed by 1,443 30-year, fully-amortizing fixed rate mortgage loans with a total balance of $883,819,918 as of December 1, 2017 cut-off date. Similar to prior JPMMT transactions, JPMMT 2017-6 includes conforming fixed-rate mortgage loans originated by JPMorgan Chase Bank, N. A. (Chase) and LoanDepot, and underwritten to the government sponsored enterprises (GSE) guidelines in addition to prime jumbo non-conforming mortgages purchased by JPMMAC from various originators and aggregators. JPMorgan Chase Bank, N.A. and LoanDepot, will be the servicers on the conforming loans originated by JPMorgan Chase and LoanDepot, respectively, while Shellpoint Mortgage Servicing, LoanDepot, USAA, Guaranteed Rate, PHH Mortgage, First Republic Bank, TIAA, FSB and Johnson Bank will be the servicers on the prime jumbo loans. Wells Fargo Bank, N.A. will be the master servicer and securities administrator. U.S. Bank National Association will be the trustee. Pentalpha Surveillance LLC will be the representations and warranties breach reviewer. Distributions of principal and interest and loss allocations are based on a typical shifting-interest structure that benefits from and a senior and subordination floor.

The complete rating actions are as follows:

Issuer: J.P. Morgan Mortgage Trust 2017-6

Cl. A-1, Assigned (P)Aaa (sf)

Cl. A-2, Assigned (P)Aaa (sf)

Cl. A-3, Assigned (P)Aaa (sf)

Cl. A-4, Assigned (P)Aaa (sf)

Cl. A-5, Assigned (P)Aaa (sf)

Cl. A-6, Assigned (P)Aaa (sf)

Cl. A-7, Assigned (P)Aaa (sf)

Cl. A-8, Assigned (P)Aaa (sf)

Cl. A-9, Assigned (P)Aaa (sf)

Cl. A-10, Assigned (P)Aaa (sf)

Cl. A-11, Assigned (P)Aaa (sf)

Cl. A-12, Assigned (P)Aaa (sf)

Cl. A-13, Assigned (P)Aa1 (sf)

Cl. A-14, Assigned (P)Aa1 (sf)

Cl. B-1, Assigned (P)Aa3 (sf)

Cl. B-2, Assigned (P)A2 (sf)

Cl. B-3, Assigned (P)Baa3 (sf)

Cl. B-4, Assigned (P)Ba2 (sf)

Cl. B-5, Assigned (P)B3 (sf)

RATINGS RATIONALE

Summary Credit Analysis and Rating Rationale

Moody’s expected cumulative net loss on the aggregate pool is 0.45% in a base scenario and reaches 5.35% at a stress level consistent with the Aaa ratings.

We calculated losses on the pool using our US Moody’s Individual Loan Analysis (MILAN) model based on the loan-level collateral information as of the cut-off date. Loan-level adjustments to the model results included adjustments to probability of default for higher and lower borrower debt-to-income ratios (DTIs), for borrowers with multiple mortgaged properties, self-employed borrowers, and for the default risk of Homeownership association (HOA) properties in super lien states. Our final loss estimates also incorporate adjustments for originator assessments and the financial strength of Representation & Warranty (R&W) providers.

We base our provisional ratings on the certificates on the credit quality of the mortgage loans, the structural features of the transaction, our assessments of the aggregators, originators and servicers, the strength of the third party due diligence and the representations and warranties (R&W) framework of the transaction.

Collateral Description

JPMMT 2017-6 is a securitization of a pool of 1,443 30-year, fully-amortizing mortgage loans with a total balance of $883,819,918 as of the cut-off date, with a weighted average (WA) remaining term to maturity of 357 months, and a WA seasoning of 3 months. The borrowers in this transaction have high FICO scores and sizeable equity in their properties. The WA current FICO score is 771 and the WA original combined loan-to-value ratio (CLTV) is 71.8%. The characteristics of the loans underlying the pool are generally comparable to other JPMMT transactions backed by 30-year mortgage loans that we have rated.

In this transaction, 55.2% of the pool by loan balance was underwritten by Chase and LoanDepot to Fannie Mae’s and Freddie Mac’s guidelines (conforming loans). Moreover, the conforming loans in this transaction have a high average current loan balance at $536,992. The higher conforming loan balance of loans in JPMMT 2017-6 is attributable to the greater amount of properties located in high-cost areas, such as the metro areas of New York City, Los Angeles and San Francisco. LoanDepot contributes approximately 12.5% of the mortgage loans in the pool. The remaining originators each account for less than 10% of the principal balance of the loans in the pool and provide R&W to the transaction.

Third-party Review and Reps & Warranties

Four third party review (TPR) firms verified the accuracy of the loan-level information that the sponsor gave us. These firms conducted detailed credit, collateral, and regulatory reviews on 100% of the mortgage pool. The TPR results indicated compliance with the originators’ underwriting guidelines for the vast majority of loans, no material compliance issues, and no appraisal defects. The loans that had exceptions to the originators’ underwriting guidelines had strong documented compensating factors such as low DTIs, low LTVs, high reserves, high FICOs, or clean payment histories. The TPR firms also identified minor compliance exceptions for reasons such as inadequate RESPA disclosures (which do not have assignee liability) and TILA/RESPA Integrated Disclosure (TRID) violations related to fees that were out of variance but then cured and disclosed. We did not make any adjustments to our expected or Aaa loss levels due to the TPR results.

JPMMT 2017-6’s R&W framework is in line with other JPMMT transactions where an independent reviewer is named at closing, and costs and manner of review are clearly outlined at issuance. Our review of the R&W framework takes into account the financial strength of the R&W providers, scope of R&Ws (including qualifiers and sunsets) and enforcement mechanisms.

The R&W providers vary in financial strength. JPMorgan Chase Bank, National Association (rated Aa2), who is the R&W provider for approximately 48.6% (by loan balance) of the loans, is the strongest R&W provider. We have made no adjustments on the Chase loans in the pool, as well as loans originated by TIAA, FSB and First Republic Bank. In contrast, the rest of the R&W providers are unrated and/or financially weaker entities. Moreover, JPMMAC will not backstop any R&W providers who may become financially incapable of repurchasing mortgage loans. We made an adjustment for these loans in our analysis to account for this risk.

For loans that JPMMAC acquired via the MAXEX platform, MAXEX under the assignment, assumption and recognition agreement with JPMMAC, will make the R&Ws. The R&Ws provided by MAXEX to JPMMAC and assigned to the trust are in line with the R&Ws found in the JPMMT transactions. Five Oaks Acquisition Corp. backstops all validated R&W violations through a combination of enforcement and insolvency guarantees.

Trustee and Master Servicer

The transaction trustee is U.S. Bank National Association. The custodian’s functions will be performed by Wells Fargo Bank, N.A. and JP Morgan Chase Bank. The paying agent and cash management functions will be performed by Wells Fargo Bank, N.A., rather than the trustee. In addition, Wells Fargo, as Master Servicer, is responsible for servicer oversight, and termination of servicers and for the appointment of successor servicers. In addition, Wells Fargo is committed to act as successor if no other successor servicer can be found. We assess Wells Fargo as an SQ1 (strong) master servicer of residential loans.

Tail Risk & Subordination Floor

This deal has a standard shifting-interest structure, with a subordination floor to protect against losses that occur late in the life of the pool when relatively few loans remain (tail risk). When the total senior subordination is less than 0.75% of the original pool balance, the subordinate bonds do not receive any principal and all principal is then paid to the senior bonds. In addition, if the subordinate percentage drops below 6.00% of current pool balance, the senior distribution amount will include all principal collections and the subordinate principal distribution amount will be zero. The subordinate bonds themselves benefit from a floor. When the total current balance of a given subordinate tranche plus the aggregate balance of the subordinate tranches that are junior to it amount to less than 0.55% of the original pool balance, those tranches do not receive principal distributions. Principal those tranches would have received are directed to pay more senior subordinate bonds pro-rata.

Transaction Structure

The transaction uses the shifting interest structure in which the senior bonds benefit from a number of protections. Funds collected, including principal, are first used to make interest payments to the senior bonds. Next, principal payments are made to the senior bonds. Next, available distribution amounts are used to reimburse realized losses and certificate writedown amounts for the senior bonds (after subordinate bond have been reduced to zero I.e. the credit support depletion date). Finally, interest and then principal payments are paid to the subordinate bonds in sequential order.

Realized losses are allocated in a reverse sequential order, first to the lowest subordinate bond. After the balance of the subordinate bonds is written off, losses from the pool begin to write off the principal balance of the senior support bond, and finally losses are allocated to the super senior bonds.

In addition, the pass-through rate on the bonds is based on the net WAC as reduced by the sum of (i) the reviewer annual fee rate and (ii) the capped trust expense rate. In the event that there is a small number of loans remaining, the last outstanding bonds’ rate can be reduced to zero.

Other Considerations

Similar to recent JPMMT transactions, extraordinary trust expenses in the JPMMT 2017-6 transaction are deducted from Net WAC as opposed to available distribution amount. We believe there is a very low likelihood that the rated certificates in JPMMT 2017-6 will incur any losses from extraordinary expenses or indemnification payments from potential future lawsuits against key deal parties. First, all of the loans are prime quality Qualified Mortgages originated under a regulatory environment that requires tighter originations controls than pre-crisis, thus reducing the likelihood that the loans have defects that could form the basis of a lawsuit. Second, the transaction has reasonably well defined processes in place to identify loans with defects on an ongoing basis. In this transaction, an independent breach reviewer (Pentalpha Surveillance, LLC), named at closing must review loans for breaches of representations and warranties when certain clearly defined triggers have been breached which reduces the likelihood that parties will be sued for inaction. Third, the issuer has disclosed the results of a credit, compliance and valuation review of 100% of the mortgage loans by independent third parties (AMC, Inglet Blair, Opus and Clayton Services LLC).

Finally, the performance of past JPMMT transactions have been well within expectation.

Factors that would lead to an upgrade or downgrade of the ratings:

Down

Levels of credit protection that are insufficient to protect investors against current expectations of loss could drive the ratings down. Losses could rise above Moody’s original expectations as a result of a higher number of obligor defaults or deterioration in the value of the mortgaged property securing an obligor’s promise of payment. Transaction performance also depends greatly on the US macro economy and housing market. Other reasons for worse-than-expected performance include poor servicing, error on the part of transaction parties, inadequate transaction governance and fraud.

Up

Levels of credit protection that are higher than necessary to protect investors against current expectations of loss could drive the ratings of the subordinate bonds up. Losses could decline from Moody’s original expectations as a result of a lower number of obligor defaults or appreciation in the value of the mortgaged property securing an obligor’s promise of payment. Transaction performance also depends greatly on the US macro economy and housing market.

Methodology

The principal methodology used in these ratings was “Moody’s Approach to Rating US Prime RMBS,” published in February 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

In addition, Moody’s publishes a weekly summary of structured finance credit ratings and methodologies, available to all registered users of our website, www.moodys.com/SFQuickCheck

REGULATORY DISCLOSURES

For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1104206.

The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody’s evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.

Moody’s quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody’s weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Sonny Weng
Vice President – Senior Analyst
Structured Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Todd Swanson
Vice President – Senior Analyst
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

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