Interest on a fixed pool of prime HELOCs is the collateral for pass-through certificates issued by J.P. Morgan Mortgage Trust 2023-HE3 (JPMMT Trust 2023-HE3).
United Wholesale Mortgage and loanDepot.com are the main originators of the collateral loan pool, 39.8% of which is in California. The open-ended HELOCs are secured by second liens on primarily one- to four-family residential properties, condominiums, site condos and townhouses, with a maximum HELOC draw amount of $323 million, according to Fitch Ratings.
The pool consists of 3,002 prime-quality, non-seasoned, performing, adjustable-rate open-ended loans that have two-, three-, five- or 10-year interest-only periods and maturities of up to 30 years. The loans are 100% adjustable rate, with an average balance of $85,884, according to Kroll Bond Rating Agency.
Fitch puts the outstanding current pool balance at $257.82 million, and the collateral balance, based on the maximum draw amount, at $322.76 million.
The sponsor for JPMMT 2023-HE3 is J.P. Morgan Mortgage Acquisition, and Focus III Advisory is co-sponsor and participation certificate seller. Initial purchasers are J.P. Morgan Securities, AmeriVet Securities, Drexel Hamilton, Loop Capital Markets, Raymond James, Robert W. Baird, and Stifel, Nicolaus. The closing date is December 28, 2023.
According to Fitch, the pool has a weighted average (WA) original FICO score of 746, indicative of very high credit-quality borrowers. The original WA combined loan to value (CLTV) ratio of 66.8% translates to a sustainable loan-to-value (sLTV) ratio of 73.9%, the credit rating agency said.
JPMMT 2023-HE3 is closely aligned with JPMMT 2023-HE2, according to Fitch. However, JPMMT 2023-HE3 has a slightly lower original FICO (746 versus 748), a higher sLTV ratio (73.9% versus 73.7%), and a higher debt-to-income (DTI) ratio, which Fitch puts at 41.9%, versus 41.5%.
According to KBRA, JPMMT 2023-HE3's deal structure incorporates excess spread along with a sequential interest waterfall and pro-rata/sequential-pay hybrid principal payment waterfall. Losses will be allocated reverse sequentially beginning with the class B-4 certificates through to the class A-1 certificates.
Like JPMMT 2023-HE1 and 2023-HE2, 2023-HE3 uses excess spread to absorb losses, Fitch said.
Fitch expects to assign an AAA rating to the class A-1 notes, AA to M-1, A to M-2, BBB to M-3, BB to B-1, and B to the B-2 notes. It didn't rate the B-3 notes.
KBRA has assigned a preliminary rating of AAA to the class A-1 notes, AA+ to M-1, A+ to M-2, BBB+ to M-3, BB+ to B-1, BB to B-2, and B+ to the B-3 notes.
Neither Fitch nor KBRA rated the B-4, A-IO-S or X notes.
