DBRS Morningstar Assigns Provisional Ratings to J.P. Morgan Mortgage Trust 2021-LTV2

DBRS, Inc. (DBRS Morningstar) assigned the following provisional ratings to the Mortgage Pass-Through Certificates, Series 2021-LTV2 (the Certificates) to be issued by J.P. Morgan Mortgage Trust 2021-LTV2 (JPMMT 2021-LTV2):

-- $393.4 million Class A-1 at AAA (sf)
-- $36.9 million Class A-2 at AA (high) (sf)
-- $32.0 million Class A-3 at A (high) (sf)
-- $462.3 million Class A-X-1 at A (high) (sf)
-- $4.4 million Class M-1 at BBB (high) (sf)
-- $3.2 million Class B-1 at BB (high) (sf)
-- $13.5 million Class B-2 at B (high) (sf)

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

Class A-X-1 is an interest-only certificate. The class balance represents a notional amount.

The AAA (sf) rating on the Class A-1 Certificates reflects 20.00% of credit enhancement provided by subordinate certificates. The AA (high) (sf), A (high) (sf), BBB (high) (sf), BB (high) (sf), and B (high) (sf) ratings reflect 12.50%, 6.00%, 5.10%, 4.45%, and 1.70% of credit enhancement, respectively.

This securitization of a portfolio of first-lien fixed-rate prime residential mortgages is funded by the issuance of the Certificates. The Certificates are backed by 518 loans with a total principal balance of $491,761,078 as of the Cut-Off Date (December 1, 2021).

Compared with other post-crisis prime pools, this portfolio consists of higher loan-to-value (LTV), first-lien, fully amortizing fixed-rate mortgages with original terms to maturity of up to 30 years. The weighted-average original combined LTV (CLTV) for the portfolio is 86.6%, and the majority of the pool (78.4%) comprises loans with DBRS Morningstar-calculated current CLTV ratios greater than 80.0%. The high LTV attribute of this portfolio is mitigated by certain strengths, such as high FICO scores, low debt-to-income ratios, robust income and reserves, as well as other strengths detailed in the report.

The originators for the aggregate mortgage pool are United Wholesale Mortgage, LLC (UWM; 44.3%), loanDepot.com, LLC (loanDepot; 12.9%), and various other originators of which each comprises less than 10.0% of the pool.

The mortgage loans will be serviced by UMW (44.3%), Shellpoint Mortgage Servicing (SMS; 41.8%), loanDepot (12.9%), and A&D Mortgage LLC (0.9%). For UWM and loanDepot-serviced loans, the subservicer is Cenlar FSB (57.3%).

As of the Closing Date, SMS (41.8%) is the interim servicer for JPMorgan Chase Bank, National Association (JPMCB). Servicing will be transferred to JPMCB from SMS on the servicing transfer date (February 1, 2022, or a later date) as determined by the Issuing Entity and JPMCB. For this transaction, the servicing fee payable for mortgage loans serviced by JPMCB, loanDepot, SMS, and UWM 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 Mortgage LLC 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. Computershare Trust Company N.A. will act as Custodian. Pentalpha Surveillance LLC will serve as the Representations and Warranties Reviewer.

Unlike transactions previously issued under the LTV shelf, which employed a traditional prime shifting-interest structure, JPMMT 2021-LTV2 employs a sequential cash flow structure with a pro rata feature among the senior tranches. Principal proceeds can be used to cover interest shortfalls on the Class A-1 Certificates. For more subordinated Certificates, principal proceeds can be used to cover interest shortfalls as the more senior Certificates are paid in full. Furthermore, excess spread can be used to cover realized losses and prior period bond writedown amounts.

Coronavirus Impact
The Coronavirus Disease (COVID-19) pandemic and the resulting isolation measures have caused an immediate economic contraction, leading to sharp increases in unemployment rates and income reductions for many consumers. DBRS Morningstar saw increases in delinquencies for many residential mortgage-backed securities (RMBS) asset classes shortly after the onset of the pandemic.

Such mortgage delinquencies were mostly in the form of forbearance, which are generally short-term payment reliefs that may perform very differently from traditional delinquencies. At the onset of coronavirus, because the option to forebear mortgage payments was so widely available, it drove forbearance to a very high level. When the dust settled, coronavirus-induced forbearance in 2020 performed better than expected, thanks to government aid, low LTVs, and good underwriting in the mortgage market in general. Across nearly all RMBS asset classes, delinquencies have been gradually trending down in recent months as forbearance period comes to an end for many borrowers.

As of the Cut-Off Date, none of the loans are currently subject to a coronavirus-related forbearance plan. 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.

For more information regarding rating methodologies and the coronavirus, please see the following DBRS Morningstar commentary: “Baseline Macroeconomic Scenarios For Rated Sovereigns December 2021 Update,” dated December 9, 2021.

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

The ratings reflect transactional weaknesses that include the representations and warranties framework, and financial capability of the counterparties.

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

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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 info@dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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