Answering Questions on Student Loan Rates and the Murky Future

This is not because the decision involves the largest number of dollars, although it is getting there for many families. Instead, it is because of a number of confounding factors. There is the uncertainty about a student’s future ability to pay back student loan debt or whether spending twice as much for some schools will lead to a future that is twice as lucrative or happy. Then there is the difficulty of having a teenager participating in an enormous financial decision without much experience to draw on.

But perhaps the biggest problem is that people don’t always know where to find good information about the choices and their consequences. This was readily apparent this week when, in the wake of our continuing series of stories about student loans, we took questions on the topic on our Bucks blog.

We were able to answer many of the questions fairly quickly, but others were big enough and searching enough that I decided to tackle them here. They fall into two categories: questions about why the rules on interest rates and refinancing are the way they are and how to avoid unpleasant financial surprises after you have taken on all that debt.

Here are answers to four of the most important ones:

High Rates

While one type of federal student loan is (possibly temporarily) available at a 3.4 percent interest rate, others cost 6.8 percent, and loans for parents and graduate students are 7.9 percent. (Private loans from banks are often more costly.) Why are they so high, given the low prevailing rates elsewhere? “I tell Europeans this, and they laugh and shake their heads,” said one reader in Copenhagen. As we learned this year when a skirmish broke out in Washington over whether certain rates were going to rise, it is Congress that sets the rates. And doing so is a political act, not one necessarily rooted in economic science or reason.

“Budgeting for the government starts from the status quo, and the status quo is 6.8 percent and 7.9 percent,” said Robert Shireman, who worked on student loan issues at the Department of Education for the first few years of President Obama’s term. So any change that benefits borrowers means an offsetting cut someplace else, perhaps in Pell Grants for the truly needy.

Jason Delisle, director of the federal education budget project at the New America Foundation, a nonpartisan public policy institute in Washington, begins his analysis by noting how different student loans are from loans like mortgages, which have fixed interest rates that are half of what some student loans offer today. There is no credit check for students, no down payment and no collateral or consideration of where you are studying or whether you are majoring in underwater basket weaving.

Also, the loans come with repayment options and loan forgiveness programs that mortgages do not have.

That’s not to say that Mr. Delisle isn’t sympathetic to the call for lower rates, given that the student loan program does take in more than it lends out. But how would you set the new rates? The fixed interest rates that exist today seemed to be a good deal when Congress set them years ago.

“Congress could go back to variable interest rates,” he said. “But then people want a cap on those rates. What should the cap be? Somebody picks a number, and somebody always loses, either taxpayers or borrowers. And variable looks fair, because everyone has the same rate at the same time. But the problem with that is people can’t really plan.”

Rafael Pardo, a bankruptcy professor at Emory University’s law school, frames the issue differently. He would have no problem with the government making money on the student loan program if it were a bit easier to discharge the loans in bankruptcy for people who get in over their heads. But the process is hard enough that he recently spent nearly 650 hours of pro bono time trying to help just one debtor.

Alternatively, he would be fine with much lower rates while continuing to make it very hard to discharge the debt. “But you can’t be hitting them on the front end and on the back end,” he said, which is his view of what the status quo does today.

Refinancing

A reader from New York City consolidated a bunch of loans into a single loan more than a decade ago at 8.125 percent and cannot refinance the loan at a lower rate because of rules that prohibit this. The comment summed things up this way: “I have excellent credit but feel like I am unfairly punished and stuck with this extortionate interest rate for the rest of my working life.”

This, too, is something only Congress can change, and perhaps it didn’t anticipate this problem or worry about it back when it thought it was doing students a favor by letting them consolidate debt at a fixed rate and relieving them of having to keep track of a big pile of individual loans.

Still, Mr. Shireman, who was a champion for the income-based repayment program that now allows people with lower incomes to make more affordable payments and have any remaining debt waived after a certain number of years, doesn’t see this particular complaint gaining much traction.

“There aren’t the votes to make this kind of change,” he said. “And I think one response would be that if these are high-income New York Times subscribers, then their needs are not as great as Pell Grant recipients. And if they’re low-income and struggling, they have income-based repayment and they can get a big benefit from that.”

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Mercurial Mortgage Rates to Stabilize Soon, Analysts Say

While rates on home loans are likely to remain modest by traditional standards, the ultralow borrowing costs that encouraged millions of homeowners to refinance and helped revive the moribund housing market are quickly becoming a memory. As yields on 10-year government bonds rise amid signs that the economy is improving and that the Federal Reserve will reduce bond purchases, mortgage rates have quickly followed.

Rates on 30-year fixed mortgages hit 4.25 percent on Thursday, up from 4.12 percent on Wednesday morning before the Fed chairman, Ben S. Bernanke, signaled the central bank might begin easing back on stimulus efforts later this year. As recently as May, the average interest rate on a 30-year fixed mortgage stood at 3.5 percent, close to the lowest in decades.

While mortgage rates are moving higher, rates on other forms of credit like car loans, home equity loans and credit cards are not expected to budge. They are either already set at relatively high levels, like most credit card borrowing costs, or tied to short-term interest rates, which the Fed has indicated will not rise before 2015. For example, the rate on a five-year car loan currently is just over 4 percent, about where it was in mid-May. Similarly, a fixed-rate home equity loan carries a rate of 6.1 percent, not far from where it was a month ago.

But the fact that the Fed is keeping the short-term bank lending rate it controls at close to zero also means that savers will not see any improvement in the paltry interest paid on savings accounts at banks, money market accounts and short-term certificates of deposit, which are also tied to short-term rates.

By contrast, long-term rates are rising because the central bank’s current program of purchasing $85 billion a month in Treasury securities and mortgage bonds is expected to start tapering off later this year, if the economy continues to recover. Despite the sudden jump in long-term borrowing costs, some experts say it is unlikely that government bond rates will keep spiking from current levels, and could actually ease slightly.

“Mortgage rates tend to move a lot in a short amount of time, then do nothing for a longer period,” said Greg McBride, senior financial analyst at Bankrate.com, a personal finance Web site. “Rates will stabilize and potentially pull back as Bernanke’s words fade and economic reality sets in.”

Nor should holders of adjustable-rate mortgages panic. “Someone who already has one doesn’t have to worry until the Fed starts raising short-term rates,” Mr. McBride said.

Still, the recent move upward in mortgage rates signals the beginning of a longer-term trend of higher borrowing costs for home buyers, which had reached lows not seen in decades.

“Clearly, mortgage rates and bond yields will be higher in the long run than they are today,” Mr. McBride said, adding that he expects borrowing costs on 30-year fixed mortgages to hover in the 4 to 4.5 percent range for the rest of the year. “I don’t think rates will go back below 4 percent,” he said.

Even if mortgage rates do move higher than that, they will still be well below the levels that prevailed as recently as 2007, before the recession and the financial crisis. Between 2000 and 2007, rates averaged 6.5 percent on 30-year mortgage notes.

“I don’t think this foreshadows a huge rise in rates but there will be more volatility in the fixed-income markets than we’ve seen recently,” said Brian Rehling, chief fixed-income strategist at Wells Fargo Advisors.

Mr. Rehling predicts yields on 10-year Treasury bonds, the benchmark for pricing mortgages, to be at 2.25 percent at the end of this year, slightly below where they finished the day on Thursday, at 2.42 percent. Paul Edelstein, director of financial economics at IHS Global Insight, also expects yields to stabilize. “I’m being cautious,” he said. “Rates are going to be higher than I thought last month but I’m not sure the rates we are seeing today will be sustained throughout the rest of the year.”

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Answering Questions on Student Loan Rates and the Murky Future

This is not because the decision involves the largest number of dollars, although it is getting there for many families. Instead, it is because of a number of confounding factors. There is the uncertainty about a student’s future ability to pay back student loan debt or whether spending twice as much for some schools will lead to a future that is twice as lucrative or happy. Then there is the difficulty of having a teenager participating in an enormous financial decision without much experience to draw on.

But perhaps the biggest problem is that people don’t always know where to find good information about the choices and their consequences. This was readily apparent this week when, in the wake of our continuing series of stories about student loans, we took questions on the topic on our Bucks blog.

We were able to answer many of the questions fairly quickly, but others were big enough and searching enough that I decided to tackle them here. They fall into two categories: questions about why the rules on interest rates and refinancing are the way they are and how to avoid unpleasant financial surprises after you have taken on all that debt.

Here are answers to four of the most important ones:

High Rates

While one type of federal student loan is (possibly temporarily) available at a 3.4 percent interest rate, others cost 6.8 percent, and loans for parents and graduate students are 7.9 percent. (Private loans from banks are often more costly.) Why are they so high, given the low prevailing rates elsewhere? “I tell Europeans this, and they laugh and shake their heads,” said one reader in Copenhagen. As we learned this year when a skirmish broke out in Washington over whether certain rates were going to rise, it is Congress that sets the rates. And doing so is a political act, not one necessarily rooted in economic science or reason.

“Budgeting for the government starts from the status quo, and the status quo is 6.8 percent and 7.9 percent,” said Robert Shireman, who worked on student loan issues at the Department of Education for the first few years of President Obama’s term. So any change that benefits borrowers means an offsetting cut someplace else, perhaps in Pell Grants for the truly needy.

Jason Delisle, director of the federal education budget project at the New America Foundation, a nonpartisan public policy institute in Washington, begins his analysis by noting how different student loans are from loans like mortgages, which have fixed interest rates that are half of what some student loans offer today. There is no credit check for students, no down payment and no collateral or consideration of where you are studying or whether you are majoring in underwater basket weaving.

Also, the loans come with repayment options and loan forgiveness programs that mortgages do not have.

That’s not to say that Mr. Delisle isn’t sympathetic to the call for lower rates, given that the student loan program does take in more than it lends out. But how would you set the new rates? The fixed interest rates that exist today seemed to be a good deal when Congress set them years ago.

“Congress could go back to variable interest rates,” he said. “But then people want a cap on those rates. What should the cap be? Somebody picks a number, and somebody always loses, either taxpayers or borrowers. And variable looks fair, because everyone has the same rate at the same time. But the problem with that is people can’t really plan.”

Rafael Pardo, a bankruptcy professor at Emory University’s law school, frames the issue differently. He would have no problem with the government making money on the student loan program if it were a bit easier to discharge the loans in bankruptcy for people who get in over their heads. But the process is hard enough that he recently spent nearly 650 hours of pro bono time trying to help just one debtor.

Alternatively, he would be fine with much lower rates while continuing to make it very hard to discharge the debt. “But you can’t be hitting them on the front end and on the back end,” he said, which is his view of what the status quo does today.

Refinancing

A reader from New York City consolidated a bunch of loans into a single loan more than a decade ago at 8.125 percent and cannot refinance the loan at a lower rate because of rules that prohibit this. The comment summed things up this way: “I have excellent credit but feel like I am unfairly punished and stuck with this extortionate interest rate for the rest of my working life.”

This, too, is something only Congress can change, and perhaps it didn’t anticipate this problem or worry about it back when it thought it was doing students a favor by letting them consolidate debt at a fixed rate and relieving them of having to keep track of a big pile of individual loans.

Still, Mr. Shireman, who was a champion for the income-based repayment program that now allows people with lower incomes to make more affordable payments and have any remaining debt waived after a certain number of years, doesn’t see this particular complaint gaining much traction.

“There aren’t the votes to make this kind of change,” he said. “And I think one response would be that if these are high-income New York Times subscribers, then their needs are not as great as Pell Grant recipients. And if they’re low-income and struggling, they have income-based repayment and they can get a big benefit from that.”

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Fitch Rates Sequoia Mortgage Trust 2013-10

--$371,622,000 class A-1 exchangeable certificate 'AAAsf'; Outlook Stable;
--$185,811,000 class A-2 certificate 'AAAsf'; Outlook Stable;
--$185,811,000 class A-3 certificate 'AAAsf'; Outlook Stable;
--$185,811,000 class A-4 exchangeable certificate 'AAAsf'; Outlook Stable;
--$185,811,000 class A-5 exchangeable certificate 'AAAsf'; Outlook Stable;
--$185,811,000 class A-6 exchangeable certificate 'AAAsf'; Outlook Stable;
--$185,811,000 class A-7 exchangeable certificate 'AAAsf'; Outlook Stable;
--$371,622,000 class A-8 exchangeable certificate 'AAAsf'; Outlook Stable;
--$185,811,000 class A-IO1 notional certificate 'AAAsf'; Outlook Stable;
--$185,811,000 class A-IO2 notional certificate 'AAAsf'; Outlook Stable;
--$185,811,000 class A-IO3 notional certificate 'AAAsf'; Outlook Stable;
--$371,622,000 class A-IO notional certificate 'AAAsf'; Outlook Stable;
--$10,217,000 class B-1 certificate 'AAsf'; Outlook Stable;
--$6,811,000 class B-2 certificate 'Asf'; Outlook Stable;
--$4,608,000 class B-3 certificate 'BBBsf'; Outlook Stable;
--$3,205,000 non-offered class B-4 certificate 'BBsf'; Outlook Stable.

The 'AAAsf' rating on the senior certificates reflects the 7.25% subordination provided by the 2.55% class B-1, 1.70% class B-2, 1.15% class B-3, 0.80% non-offered class B-4 and 1.05% non-offered class B-5. The $4,208,564 non-offered 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, CitiMortgage, Inc. will act as the master servicer and Wilmington Trust 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).

SEMT 2013-10 will be Redwood Residential Acquisition Corporation's tenth transaction of prime residential mortgages in 2013. The certificates are supported by a pool of prime fixed rate mortgage loans. All of the loans are fully amortizing. The aggregate pool included loans originated from PrimeLending (8.5%) and WJ Bradley Mortgage Capital (7.6%). The remainder of the mortgage loans was originated by various mortgage lending institutions, each of which contributed less than 5% to the transaction.

As of the cut-off date, the aggregate pool consisted of 529 loans with a total balance of $400,671,564; an average balance of $757,413; a weighted average original combined loan-to-value ratio (CLTV) of 68.1%, and a weighted average coupon (WAC) of 3.9%. Rate/Term and cash out refinances account for 45.5% and 5.0% of the loans, respectively. The weighted average original FICO credit score of the pool is 775. Owner-occupied properties comprise 95.2% of the loans. The states that represent the largest geographic concentration are California (40.9%), Texas (9.4%) and Virginia (6.7%).

KEY RATING DRIVERS

High-Quality Mortgage Pool: The collateral pool consists of 30-year fully amortizing, fully documented FRMs to borrowers with strong credit profiles, low leverage, and substantial liquid reserves. Third-party loan-level due diligence was conducted on 99.8% of the pool, and Fitch believes the results of the review generally indicate strong underwriting controls.

Originators with Limited Performance History: The majority of the pool was originated by lenders with limited non-agency performance history. The lack of performance history is partially mitigated by the 100% third-party diligence conducted on these loans that resulted in immaterial findings. Fitch also considers the credit enhancement (CE) on this transaction sufficient to mitigate the originator risk.

Geographically Diverse Pool: The collateral pool is geographically diverse. The percentage in the top three metropolitan statistical areas (MSAs) is 23.1% and concentration in California is 40.9%, similar to recent SEMT transactions. The agency did not apply a default penalty to the pool due to the low geographic concentration risk.

Transaction Provisions Enhance Deal Framework: The representation, warranty and enforcement mechanism framework is viewed positively, as it is consistent with Fitch criteria. As in other recent Fitch-rated SEMT transactions, SEMT 2013-10 contains binding arbitration provisions that may serve to provide timely resolution to representation and warranty disputes. In addition, all loans that become 120 days or more delinquent will be reviewed for breaches of representations and warranties.

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 metropolitan statistical area (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, Fitch's sustainable home price (SHP) model does not project declines in home prices. This region is Dallas-Plano-Irving in Texas (4.3%). Fitch conducted sensitivity analysis assuming sMVDs of 10%, 15%, and 20% compared with those projected by Fitch's SHP model for this region. The sensitivity analysis indicated no impact on ratings for all bonds in each scenario.

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 13.7%, slightly less than the 14.5% base sMVD projected in the current model.

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 14.5% for this pool. The analysis indicates there is some potential rating migration with higher MVDs, compared with the model projection.

Additional detail on the transaction is described in the new issue report 'Sequoia Mortgage Trust 2013-10'.

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', July 16, 2013;
--'U.S. RMBS Loan Loss Model Criteria', Aug. 10, 2012;
--'U.S. RMBS Cash Flow Analysis Criteria', April 19, 2013;
--'U.S. RMBS Representations and Warranties Criteria', June 24, 2013;
--'U.S. RMBS Originator Review and Third-Party Due Diligence Criteria', April 26, 2013;
--'U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria', Jan. 31, 2011;
--'U.S. RMBS Surveillance Criteria', Oct. 11, 2012.

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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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