DBRS Morningstar Finalizes Provisional Ratings on GS Mortgage-Backed Securities Trust 2020-PJ5

DBRS, Inc. (DBRS Morningstar) finalized the following provisional ratings on the Mortgage Pass-Through Certificates, Series 2020-PJ5 (the Certificates) issued by GS Mortgage-Backed Securities Trust 2020-PJ5:

-- $351.5 million Class A-1 at AAA (sf)
-- $351.5 million Class A-2 at AAA (sf)
-- $36.2 million Class A-3 at AAA (sf)
-- $36.2 million Class A-4 at AAA (sf)
-- $263.6 million Class A-5 at AAA (sf)
-- $263.6 million Class A-6 at AAA (sf)
-- $87.9 million Class A-7 at AAA (sf)
-- $87.9 million Class A-8 at AAA (sf)
-- $387.6 million Class A-9 at AAA (sf)
-- $387.6 million Class A-10 at AAA (sf)
-- $387.6 million Class A-X-1 at AAA (sf)
-- $351.5 million Class A-X-2 at AAA (sf)
-- $36.2 million Class A-X-3 at AAA (sf)
-- $263.6 million Class A-X-5 at AAA (sf)
-- $87.9 million Class A-X-7 at AAA (sf)
-- $19.2 million Class B at BBB (sf)
-- $7.4 million Class B-1 at AA (sf)
-- $7.4 million Class B-1-A at AA (sf)
-- $7.4 million Class B-1-X at AA (sf)
-- $7.0 million Class B-2 at A (sf)
-- $7.0 million Class B-2-A at A (sf)
-- $7.0 million Class B-2-X at A (sf)
-- $4.8 million Class B-3 at BBB (sf)
-- $4.8 million Class B-3-A at BBB (sf)
-- $4.8 million Class B-3-X at BBB (sf)
-- $2.3 million Class B-4 at BB (sf)
-- $1.9 million Class B-5 at B (sf)

Classes A-X-1, A-X-2, A-X-3, A-X-5, A-X-7, B-1-X, B-2-X, B-3-X, and B-X are interest-only certificates. The class balances represent notional amounts.

Classes A-1, A-2, A-4, A-6, A-8, A-9, A-10, A-X-2, B-1, B-2, B, B-3, and B-X are exchangeable certificates. These classes can be exchanged for combinations of exchange certificates as specified in the offering documents.

Classes A-1, A-2, A-5, A-6, A-7, and A-8 are super-senior certificates. These classes benefit from additional protection from the senior support certificates (Classes A-3 and A-4) with respect to loss allocation.

The AAA (sf) ratings on the Certificates reflect 6.25% of credit enhancement provided by subordinated certificates. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 4.45%, 2.75%, 1.60%, 1.05%, and 0.60% of credit enhancement, respectively.

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

This securitization is a portfolio of first-lien fixed-rate prime residential mortgages funded by the issuance of the Certificates. The Certificates are backed by 480 loans with a total principal balance of $413,476,699 as of the Cut-Off Date (October 1, 2020).

The originators for the mortgage pool are United Shore Financial Services, LLC (43.8%), CrossCountry Mortgage, LLC (24.6%), and various other originators, each comprising less than 6.0% of the mortgage loans. Goldman Sachs Mortgage Company is the Sponsor and the Mortgage Loan Seller of the transaction. For certain originators, the related loans were sold to MAXEX Clearing LLC (5.6%) and SG Capital Partners LLC (0.3%) and were subsequently acquired by the Mortgage Loan Seller.

NewRez LLC doing business as Shellpoint Mortgage Servicing will service all mortgage loans within the pool. Wells Fargo Bank, N.A. (rated AA with a Negative trend by DBRS Morningstar) will act as the Master Servicer, Securities Administrator, and Custodian. U.S. Bank Trust National Association will serve as Delaware Trustee. Pentalpha Surveillance LLC will serve as the representations and warranties (R&W) File Reviewer.

The pool consists of fully amortizing fixed-rate mortgages with original terms to maturity of primarily 30 years and a weighted-average loan age of six months. Approximately 14.7% of the pool are conforming, high-balance mortgage loans that were underwritten using an automated underwriting system designated by Fannie Mae or Freddie Mac and were eligible for purchase by such agencies. The remaining 85.3% of the pool are traditional, nonagency, prime jumbo mortgage loans. Details on the underwriting of conforming loans can be found in the Key Probability of Default Drivers section of the associated presale.

For this transaction, as permitted by the Coronavirus Aid, Relief, and Economic Security Act, signed into law on March 27, 2020, 23 loans (4.1% of the pool) had been granted forbearance plans because the borrowers reported financial hardship related to the Coronavirus Disease (COVID-19) pandemic. These forbearance plans allow temporary payment holidays, followed by repayment once the forbearance period ends. As of the Cut-Off Date, all 23 loans satisfied their forbearance plans and are current. Furthermore, none of the loans in the pool are on active coronavirus forbearance plans.

The transaction employs a senior-subordinate, shifting-interest cash flow structure that is enhanced from a precrisis structure.

Coronavirus Pandemic Impact
The coronavirus pandemic and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many consumers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many residential mortgage-backed securities (RMBS) asset classes, some meaningfully.

The prime mortgage sector is a traditional RMBS asset class that consists of securitizations backed by pools of residential home loans originated to borrowers with prime credit. Generally, these borrowers have decent FICO scores, reasonable equity, and robust income and liquid reserves.

As a result of the coronavirus, DBRS Morningstar expects increased delinquencies and loans on forbearance plans, slower voluntary prepayment rates, and a potential near-term decline in the values of the mortgaged properties. Such deteriorations may adversely affect borrowers’ ability to make monthly payments, refinance their loans, or sell properties in an amount sufficient to repay the outstanding balance of their loans.

In connection with the economic stress assumed under its moderate scenario (see “Global Macroeconomic Scenarios: September Update,” published on September 10, 2020), for the prime asset class, DBRS Morningstar assumes a combination of higher unemployment rates and more conservative home price assumptions than what DBRS Morningstar previously used. Such assumptions translate to higher expected losses on the collateral pool and correspondingly higher credit enhancement.

In the prime asset class, while the full effect of the coronavirus may not occur until a few performance cycles later, DBRS Morningstar generally believes that this sector should have low intrinsic credit risk. Within the prime asset class, loans originated to (1) self-employed borrowers or (2) higher loan-to-value (LTV) ratio borrowers may be more sensitive to economic hardships resulting from higher unemployment rates and lower incomes. Self-employed borrowers are potentially exposed to more volatile income sources, which could lead to reduced cash flows generated from their businesses. Higher LTV borrowers, with lower equity in their properties, generally have fewer refinance opportunities and therefore slower prepayments. In addition, certain pools with elevated geographic concentrations in densely populated urban metropolitan statistical areas may experience additional stress from extended lockdown periods and the slowdown of the economy.

For more information regarding rating methodologies and the coronavirus, please see the following DBRS Morningstar press releases and commentary: “DBRS Morningstar Provides Update on Rating Methodologies in Light Of Measures to Contain Coronavirus Disease (COVID-19),” dated March 12, 2020; “DBRS Morningstar Global Structured Finance Rating Methodologies and Coronavirus Disease (COVID-19),” dated March 20, 2020; and “Global Macroeconomic Scenarios: September Update,” published on September 10, 2020.

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

The ratings reflect transactional weaknesses that include their R&W framework, borrowers on forbearance plans, entities lacking financial strength or securitization history, and servicer’s financial capability.

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 and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is 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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

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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