Fitch Rates J.P. Morgan Mortgage Trust 2013-3

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings assigns the following ratings to J.P. Morgan Mortgage Trust 2013-3 (JPMMT 2013-3):

--$289,612,000 class A-1 exchangeable certificates 'AAAsf'; Outlook Stable;

--$289,612,000 class A-2 exchangeable certificates 'AAAsf'; Outlook Stable;

--$289,612,000 class A-3 exchangeable certificates 'AAAsf'; Outlook Stable;

--$231,945,000 class A-4 certificates 'AAAsf'; Outlook Stable;

--$57,667,000 class A-5 exchangeable certificates 'AAAsf'; Outlook Stable;

--$231,945,000 class A-6 exchangeable certificates 'AAAsf'; Outlook Stable;

--$57,667,000 class A-7 exchangeable certificates 'AAAsf'; Outlook Stable;

--$28,833,500 class A-8 certificates 'AAAsf'; Outlook Stable;

--$28,833,500 class A-9 certificates 'AAAsf'; Outlook Stable;

--$20,000,000 class A-10 certificates 'AAAsf'; Outlook Stable;

--$931,000 class A-11 certificates 'AAAsf'; Outlook Stable;

--$231,945,000 class A-IO1 notional certificates 'AAAsf'; Outlook Stable;

--$57,667,000 class A-IO2 notional certificates 'AAAsf'; Outlook Stable;

--$289,612,000 class A-IO3 notional exchangeable certificates 'AAAsf'; Outlook Stable;

--$289,612,000 class A-IO4 notional certificates 'AAAsf'; Outlook Stable;

--$289,612,000 class A-IO5 notional exchangeable certificates 'AAAsf'; Outlook Stable;

--$3,451,000 class B-1 certificates 'AAsf'; Outlook Stable;

--$7,418,000 class B-2 certificates 'Asf'; Outlook Stable;

--$5,003,000 class B-3 certificates 'BBBsf'; Outlook Stable;

--$3,623,000 class B-4 certificates 'BBsf'; Outlook Stable;

The 'AAAsf' rating on the senior certificates reflects the 10.00% subordination provided by the 2.95% class A-M, 1.00% class B-1, 2.15% class B-2, 1.45% class B-3, 1.05% class B-4 and 1.40% class B-5. The $10,179,000 class A-M certificates and $4,831,665 class B-5 certificates will not be rated by Fitch.

Fitch's ratings reflect the high quality of the underlying collateral, the clear capital structure and the high percentage of loans reviewed by third party underwriters. In addition, Wells Fargo Bank, N.A. will act as the master servicer and U.S. Bank Trust N.A. will act as the trustee for the transaction. For federal income tax purposes, elections will be made to treat the trust as one or more real estate mortgage investment conduits (REMICs).

This transaction includes the use of Pentalpha Surveillance LLC (Pentalpha) as representation & warranties (R&W) breach reviewer for the benefit of the trust. The securities administrator will instruct Pentalpha to review any loan that satisfies the review trigger. Pentalpha will review the loan using the breach determination review procedures outlined in the transaction documents to identify failures with respect to one or more of the breach determination procedures. If a failure exists, Pentalpha will determine whether or not the failure is material, based on materiality conditions outlined in the transaction documents. Pentalpha will then provide the final results of its review and determination to the securities administrator.

JPMMT 2013-3 will be J.P. Morgan Mortgage Acquisition Corp.'s third transaction of prime residential mortgages in 2013. The certificates are supported by a pool of prime fixed-rate mortgage loans, 87.9% of which are fully amortizing, with the remaining 12.1% containing a 10-year interest-only period. The aggregate pool included loans originated or acquired by JPMorgan Chase Bank, National Association (JPMCB, 44.5%), First Republic Bank (FRB, 38.4%) and other various mortgage lending institutions, each of which contributed less than 10% to the transaction.

As of the cut-off date, the aggregate pool consisted of 389 loans with a total balance of $345,048,665; an average balance of $887,015; a weighted average original combined loan-to-value ratio (CLTV) of 66.3%, and a weighted average coupon (WAC) of 3.8%. Rate/Term and cash-out refinances account for 48.8% and 9.7% of the loans, respectively. The weighted average original FICO credit score of the pool is 769. Owner-occupied properties comprise 96.9% of the loans. The states that represent the largest geographic concentration are California (49.3%), New York (17.2%) and Illinois (7.5%).

KEY RATING DRIVERS

High-Quality Mortgage Pool: The collateral pool consists entirely of 30-year fixed-rate mortgages (FRMs) to borrowers with strong credit profiles and full documentation. Strong borrower quality is reflected in the 769 weighted average (WA) original FICO, 66.3% WA CLTV, $543,551 WA household income and $2.4 million WA liquid reserves. In addition, third-party due diligence was conducted on 100% of the pool and the results indicated strong underwriting controls.

Weak Representations and Warranties Framework: While the transaction benefits from JPMCB, J.P. Morgan Mortgage Acquisition Corp. (JPMMAC, rated 'A+/F1' by Fitch) and FRB (rated 'BBB+/F2') as rep providers for approximately 98.2% of the pool, Fitch believes the value of the R&W framework is diluted by the presence of qualifying and conditional language, as well as by the inclusion of sunset provisions, each of which substantially reduce lender loan-breach liability. While the agency believes that the high credit quality pool and clean diligence results mitigate the R&W risks to some degree, Fitch considered the weaker framework in its analysis.

High Geographic Concentration: The pools' primary concentration risk is California, where 49% of the properties are located. In addition, 54.6% of the properties are located in the pool's top five regions, representing metropolitan statistical areas (MSAs) in California, New York and Illinois. The pool has significant regional concentrations that resulted in an additional penalty of approximately 32% to the pool's lifetime default expectation.

RATING SENSITIVITIES

Fitch's analysis incorporates sensitivity analyses to demonstrate how the ratings would react to steeper market value declines (MVDs) than assumed at both the MSA and national levels. The implied rating sensitivities are only an indication of some of the potential outcomes and do not consider other risk factors that the transaction may become exposed to or be considered in the surveillance of the transaction.

Fitch conducted sensitivity analysis on areas where the model projected lower home price declines than that of the overall collateral pool. The model currently projects sustainable MVDs (sMVDs) at the MSA level. For one of the top 10 regions in the mortgage pool, Chicago-Joliet-Naperville, IL (6.5% of the mortgage pool), Fitch's SHP model does not project declines in home prices. Fitch conducted sensitivity analyses assuming sMVDs of 10%, 15%, and 20% for this identified metropolitan area. The sensitivity analyses indicated no impact on ratings for all bonds in each scenario.

Another sensitivity analysis was focused on determining how the ratings would react to steeper MVDs at the national level. The analysis assumes MVDs of 10%, 20%, and 30%, in addition to the model projected 15.6% for this pool. The analysis indicates there is some potential rating migration with higher MVDs, compared with the model projection.

In its analysis, Fitch considered placing a greater emphasis on recent economic performance in determining market value declines. While Fitch's current loan loss model looks to three years of historical data and one year of projections, this does not incorporate recent notable economic improvement. To reflect the more recent economic environment, a sensitivity analysis was performed using two years of historical economic data and two years of projections. The result of this sensitivity analysis was included in the consideration of the loss expectations for this transaction. This sensitivity analysis resulted in a base sMVD of 14.5%, down from 15.6%.

Additional detail on the transaction is described in the new issue report 'J.P. Morgan Mortgage Trust 2013-3'.

Additional information is available at 'www.fitchratings.com'.

In addition to the information sources identified in Fitch's criteria listed below, Fitch's analysis incorporated data tapes, due diligence results, deal structure and legal documents from the 17g5 website available on 'www.structuredfn.com'.

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria', May 24, 2013;

--'Counterparty Criteria for Structured Finance and Covered Bonds', May 13, 2013;

--'U.S. RMBS Rating Criteria', Jul. 16, 2013;

--'U.S. RMBS Loan Loss Model Criteria', Aug. 10, 2012;

--'U.S. RMBS Cash Flow Analysis Criteria', Apr. 19, 2013;

--'U.S. RMBS Representations and Warranties Criteria', Jun. 24, 2013;

--'U.S. RMBS Originator Review and Third-Party Due Diligence Criteria', Apr. 26, 2013;

--'U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria', Jan. 31, 2011;

--'U.S. RMBS Surveillance Criteria', Oct. 11, 2012.

Applicable Criteria and Related Research:

U.S. RMBS Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=713083

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707155

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661

U.S. RMBS Surveillance Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=691057

U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=600065

U.S. RMBS Originator Review and Third-Party Due Diligence Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707072

U.S. RMBS Representations and Warranties Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=711402

U.S. RMBS Loan Loss Model Criteria

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