DBRS is joining Fitch Ratings in awarding AAA ratings to a massive residential mortgage-backed securitization backed entirely by adjustable-rate mortgages from JPMorgan Chase & Co. (JPM).
Earlier this week, Fitch awarded AAA ratings to J.P. Morgan Mortgage Trust 2015-1, and now DBRS handed out AAA ratings of its own to the offering, is backed by 913 adjustable-rate mortgages with a total balance of $940.1 million. The underlying loans carry an average loan balance of $1,029,642.
In its presale report, DBRS cites the high quality of the credit and underlying borrowers as a positive. “The transaction exhibits high-quality credit attributes in borrower credit and loan-to-value ratios,” DBRS said. “Compared with other recently issued prime jumbo transactions, this portfolio contains lower and less bar-belled combined LTV of 62.6%.”
Additionally, DBRS noted the liquid reserves of the borrowers as a positive of the deal as well. “For the entire pool, the (non-zero) weighted-average borrower income exceeds $937,000 annually,” DBRS noted. “The weighted-average liquid reserves for the loans is approximately $2,111,922, which is enough to cover approximately 43 years of monthly mortgage payments. On average, 48.7% of the loans have liquid reserves higher than their current loan balance.”
DBRS also cited the underwriting practices of the originator of all of JPMMT 2015-1’s loans, First Republic Bank, as a protection against default.
“In its analysis, DBRS also considered First Republic’s underwriting process for ARM loans and their strong credit attributes,” DBRS wrote. “Generally First Republic evaluates borrowers who qualify ARM loans at a rate that exceeds the initial rate. This evaluation allows First Republic to make a determination as to the likelihood of whether the borrower is able to make the higher loan payments in the event that interest rates increase subsequent to origination.”
The underlying borrowers carry a weighted average FICO score of 755, according DBRS’ report. The loans also carry a weighted average coupon rate of 2.936%, a weighted average debt-to-income ratio of 27% and a weighted average seasoning of 22 months.
“Given the relatively high seasoning of the mortgage loans at 22 months, broker price opinions were provided for 82.8% of the pool (by loan count),” DBRS noted. “DBRS incorporated the BPOs in the following manner. To the extent the BPOs were lower than the original appraisal, BPOs were used to calculate the LTV. If the BPOs are higher than the original appraisal, DBRS limited such home price appreciation to 25%.”
As with most jumbo securitizations, the largest section of the underlying loans is located in California.
“Compared to other recent prime jumbo securitizations, the JPMMT 2015-1 pool has a high concentration of loans in California, particularly the San Francisco area with the San Francisco-San Mateo-Redwood City and Oakland-Fremont-Hayward MSAs representing about 35.9% of the pool,” DBRS noted. “Additionally, California represents 53.9% of the loans in the transaction.”
But DBRS notes that the San Francisco-area loans are well insulated against default.
“The San Francisco area loans in the JPMMT 2015-1 pool have high-quality credit attributes with DBRS-calculated weighted-average original combined LTV of 62.6%,” DBRS noted. “Additionally, the weighted-average liquid reserves for these loans are approximately $1,924,000 (the calculation excludes three loans with liquid reserves over $15 million), enough to cover over 43 years of their current monthly mortgage payments. On average, 47.2% of the loans have liquid reserves higher than their current loan balance.”