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Moody's assigns provisional ratings to Prime RMBS issued by GS Mortgage-Backed Securities Trust 2021-PJ4

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Rating Action: Moody's assigns provisional ratings to Prime RMBS issued by GS Mortgage-Backed Securities Trust 2021-PJ4Global Credit Research - 14 Apr 2021New York, April 14, 2021 -- Moody's Investors Service, ("Moody's") has assigned provisional ratings to 38 classes of residential mortgage-backed securities (RMBS) issued by GS Mortgage-Backed Securities Trust (GSMBS) 2021-PJ4. The ratings range from (P)Aaa (sf) to (P)B2 (sf).GS Mortgage-Backed Securities Trust 2021-PJ4 (GSMBS 2021-PJ4) is the fourth prime jumbo transaction in 2021 issued by Goldman Sachs Mortgage Company (GSMC), the sponsor and the primary mortgage loan seller. The certificates are backed by 630 prime jumbo (non-conforming), primarily 30-year, fully-amortizing fixed-rate mortgage loans with an aggregate stated principal balance $622,078,115 as of the April 1, 2021 cut-off date. Overall, pool strengths include the high credit quality of the underlying borrowers, indicated by high FICO scores, strong reserves for prime jumbo borrowers, mortgage loans with fixed interest rates and no interest-only loans. As of the cut-off date, all of the mortgage loans are current and no borrower has entered into a COVID-19 related forbearance plan with the servicer.GSMC is a wholly owned subsidiary of Goldman Sachs Bank USA and Goldman Sachs. The mortgage loans for this transaction were acquired by GSMC, the sponsor and the primary mortgage loan seller (99.6% by UPB), and MTGLQ Investors, L.P. (MTGLQ) (0.4% by UPB), a mortgage loan seller, from certain of the originators or the aggregator, MAXEX Clearing LLC (which aggregated 6.22% of the mortgage loans by UPB).NewRez LLC (formerly known as New Penn Financial, LLC) d/b/a Shellpoint Mortgage Servicing (Shellpoint) will service 100% of the pool. Wells Fargo Bank, N.A. (Wells Fargo, long term deposit, Aa1; long term debt Aa2) will be the master servicer and securities administrator. U.S. Bank Trust National Association will be the trustee. Pentalpha Surveillance LLC will be the representations and warranties (R&W) breach reviewer.We analyzed the underlying mortgage loans using Moody's Individual Loan Analysis (MILAN) model. In addition, we adjusted our losses based on qualitative attributes, including origination quality, the strength of the R&W framework and third party review (TPR) results.Distributions of principal and interest and loss allocations are based on a typical shifting interest structure with a five-year lockout period that benefits from a senior and subordination floor. We coded the cash flow to each of the certificate classes using Moody's proprietary cash flow tool.In this transaction, the Class A-15 certificates' coupon is indexed to SOFR. However, based on the transaction's structure, the particular choice of benchmark has no credit impact. First, interest payments to the notes, including the floating rate notes, are subject to the net WAC cap, which prevents the floating rate notes from incurring interest shortfalls as a result of increases in the benchmark index above the fixed rates at which the assets bear interest. Second, the shifting-interest structure pays all interest generated on the assets to the bonds and does not provide for any excess spread.Issuer: GS Mortgage-Backed Securities Trust 2021-PJ4Class A-1, Assigned (P)Aaa (sf)Class A-2, Assigned (P)Aaa (sf)Class A-3, Assigned (P)Aa1 (sf)Class A-4, Assigned (P)Aa1 (sf)Class A-5, Assigned (P)Aaa (sf)Class A-6, Assigned (P)Aaa (sf)Class A-7, Assigned (P)Aaa (sf)Class A-7-X*, Assigned (P)Aaa (sf)Class A-8, Assigned (P)Aaa (sf)Class A-9, Assigned (P)Aaa (sf)Class A-10, Assigned (P)Aaa (sf)Class A-11, Assigned (P)Aaa (sf)Class A-11-X*, Assigned (P)Aaa (sf)Class A-12, Assigned (P)Aaa (sf)Class A-13, Assigned (P)Aaa (sf)Class A-14, Assigned (P)Aaa (sf)Class A-15, Assigned (P)Aaa (sf)Class A-15-X*, Assigned (P)Aaa (sf)Class A-16, Assigned (P)Aaa (sf)Class A-17, Assigned (P)Aaa (sf)Class A-17-X*, Assigned (P)Aaa (sf)Class A-18, Assigned (P)Aaa (sf)Class A-18-X*, Assigned (P)Aaa (sf)Class A-19, Assigned (P)Aaa (sf)Class A-20, Assigned (P)Aaa (sf)Class A-21, Assigned (P)Aa1 (sf)Class A-X-1*, Assigned (P)Aa1 (sf)Class A-X-2*, Assigned (P)Aaa (sf)Class A-X-3*, Assigned (P)Aa1 (sf)Class A-X-4*, Assigned (P)Aa1 (sf)Class A-X-5*, Assigned (P)Aaa (sf)Class A-X-9*, Assigned (P)Aaa (sf)Class A-X-13*, Assigned (P)Aaa (sf)Class B-1, Assigned (P)Aa3Class B-2 , Assigned (P)A2(sf)Class B-3, Assigned (P)Baa2(sf)Class B-4 , Assigned (P)Ba2(sf)Class B-5 , Assigned (P)B2(sf)*Reflects Interest-Only ClassesRATINGS RATIONALESummary Credit Analysis and Rating RationaleMoody's expected loss for this pool in a baseline scenario-mean is 0.32%, in a baseline scenario-median is 0.16%, and reaches 3.44% at stress level consistent with our Aaa rating.The coronavirus pandemic has had a significant impact on economic activity. Although global economies have shown a remarkable degree of resilience to date and are returning to growth, the uneven effects on individual businesses, sectors and regions will continue throughout 2021 and will endure as a challenge to the world's economies well beyond the end of the year. While persistent virus fears remain the main risk for a recovery in demand, the economy will recover faster if vaccines and further fiscal and monetary policy responses bring forward a normalization of activity. As a result, there is a heightened degree of uncertainty around our forecasts. Our analysis has considered the effect on the performance of consumer assets from a gradual and unbalanced recovery in U.S. economic activity.We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.We increased our model-derived median expected losses by 10% (6.5% for the mean) and our Aaa loss by 2.5% to reflect the likely performance deterioration resulting from the slowdown in US economic activity due to the coronavirus outbreak. These adjustments are lower than the 15% median expected loss and 5% Aaa loss adjustments we made on pools from deals issued after the onset of the pandemic until February 2021. Our reduced adjustments reflect the fact that the loan pool in this deal does not contain any mortgage loans to borrowers who are not currently making payments. For newly originated mortgage loans, post-COVID underwriting takes into account the impact of the pandemic on a borrower's ability to repay the mortgage. For seasoned mortgage loans, as time passes, the likelihood that borrowers who have continued to make payments throughout the pandemic will now become non-cash flowing due to COVID-19 continues to decline.We base our ratings on the certificates on the credit quality of the mortgage loans, the structural features of the transaction, our assessments of the origination quality and servicing arrangement, strength of the TPR and the R&W framework of the transaction.Collateral DescriptionWe assessed the collateral pool as of April 1, 2021, the cut-off date. The mortgage loans consist of conventional, fully amortizing, first lien residential mortgage loans, none of which have the benefit of primary mortgage guaranty insurance. The aggregate collateral pool as of the cut-off date consists of 630 prime jumbo mortgage loans with an aggregate unpaid principal balance (UPB) of $622,078,115 and a weighted average (WA) mortgage rate of 2.9%. The WA current FICO score of the borrowers in the pool is 776. The WA Original LTV ratio of the mortgage pool is 68.9%, which is in line with GSMBS 2020-PJ4 and also with other prime jumbo transactions. All the loans are subject to the Qualified Mortgage (QM) rule. The other characteristics of the mortgage loans in the pool are generally comparable to that of GSMBS 2020-PJ4 and recent prime jumbo transactions.The mortgage loans in the pool were originated mostly in California (48.8%) and in high cost metropolitan statistical areas (MSAs) of San Francisco (16.2%), Los Angeles (13.7%), San Jose (6.2%), Chicago (6.1%) and others (21.8%), by UPB, respectively. The high geographic concentration in high cost MSAs is reflected in the high average balance of the pool ($987,426). We made adjustments to our losses to account for this geographic concentration risk. Top 10 MSAs comprise 64.1% of the pool, by UPB.Aggregator/Origination QualityGSMC is the loan aggregator and the primary mortgage seller for the transaction. GSMC's general partner is Goldman Sachs Real Estate Funding Corp. and its limited partner is Goldman Sachs Bank USA. Goldman Sachs Real Estate Funding Corp. is a wholly owned subsidiary of Goldman Sachs Bank USA. GSMC is an affiliate of Goldman Sachs & Co. LLC. GSMC is overseen by the mortgage capital markets group within Goldman Sachs. Senior management averages 16 years of mortgage experience and 15 years of Goldman Sachs tenure. The mortgage loans for this transaction were acquired by GSMC, the sponsor and a mortgage loan seller (99.6% by UPB), and MTGLQ Investors, L.P. (MTGLQ) (0.4% by UPB), a mortgage loan seller, from certain of the originators or the aggregator, MAXEX Clearing LLC (6.22% by UPB, in total). The mortgage loan sellers do not originate any mortgage loans, including the mortgage loans included in the mortgage pool. Instead, the mortgage loan sellers acquired the mortgage loans pursuant to contracts with the originators or the aggregator.Overall, we consider GSMC's aggregation platform to be comparable to that of peer aggregators and therefore did not apply a separate loss-level adjustment for aggregation quality. In addition to reviewing GSMC as an aggregator, we have also reviewed each of the originators which contributed at least 10% of the mortgage loans (by UPB) to the transaction. For these originators, we reviewed their underwriting guidelines, performance history, and quality control and audit processes and procedures (to the extent available, respectively). As such, approximately 18.5% and 10.5% of the mortgage loans, by UPB as of the cut-off date, were originated by CrossCountry Mortgage, LLC (CrossCountry) and Movement Mortgage, LLC (Movement), respectively. In addition, approximately 37.5%, 6.6% and 0.8% of the mortgage loans, by UPB as of the cut-off date (44.9% by UPB, in total), were originated by Guaranteed Rate, Inc. (GRI), Guaranteed Rate Affinity, LLC (GRA) and Proper Rate, LLC (collectively, the Guaranteed Rate Parties), respectively. The Guaranteed Rate Parties are affiliates. No other originator or group of affiliated originators originated more than 10% of the mortgage loans in the aggregate.Because we consider CrossCountry and Guaranteed Rate Parties to have adequate residential prime jumbo loan origination practices and to be in line with peers due to: (1) adequate underwriting policies and procedures, (2) consistent performance with low delinquency and repurchase and (3) adequate quality control, we did not make any adjustments to our loss levels for mortgage loans originated by these parties.Servicing ArrangementWe consider the overall servicing arrangement for this pool to be adequate, and as a result we did not make any adjustments to our base case and Aaa stress loss assumptions based on the servicing arrangement.Shellpoint will be the named primary servicer for this transaction and will service 100% of the pool. Shellpoint is an approved servicer in good standing with Ginnie Mae, Fannie Mae and Freddie Mac. Shellpoint's primary servicing location is in Greenville, South Carolina. Shellpoint services residential mortgage assets for investors that include banks, financial services companies, GSEs and government agencies. Wells Fargo will act as master. Wells Fargo is a national banking association and a wholly-owned subsidiary of Wells Fargo & Company. We consider the presence of an experienced master servicer such as Wells Fargo to be a mitigant for any servicing disruptions. Wells Fargo is committed to act as successor servicer if no other successor servicer can be engaged.Third-party ReviewThe transaction benefits from TPR on 100% of the mortgage loans for regulatory compliance, credit and property valuation. The due diligence results confirm compliance with the originators' underwriting guidelines for the vast majority of mortgage loans, no material compliance issues, and no material valuation defects. The mortgage loans that had exceptions to the originators' underwriting guidelines had significant compensating factors that were documented.Representations & WarrantiesGSMBS 2021-PJ4's R&W framework is in line with that of prior GSMBS transactions we have rated where an independent reviewer is named at closing, and costs and manner of review are clearly outlined at issuance. Our review of the R&W framework takes into account the financial strength of the R&W providers, scope of R&Ws (including qualifiers and sunsets) and the R&W enforcement mechanism. The loan-level R&Ws meet or exceed the baseline set of credit-neutral R&Ws we have identified for US RMBS. R&W breaches are evaluated by an independent third-party using a set of objective criteria. The transaction requires mandatory independent reviews of mortgage loans that become 120 days delinquent and those that liquidate at a loss to determine if any of the R&Ws are breached. There is a provision for binding arbitration in the event of a dispute between the trust and the R&W provider concerning R&W breaches.The creditworthiness of the R&W provider determines the probability that the R&W provider will be available and have the financial strength to repurchase defective loans upon identifying a breach. An investment-grade rated R&W provider lends substantial strength to its R&Ws. We analyze the impact of less creditworthy R&W providers case by case, in conjunction with other aspects of the transaction. Here, because most of the R&W providers are unrated and/or exhibit limited financial flexibility, we applied an adjustment to the mortgage loans for which these entities provided R&Ws.Tail Risk and Locked Out PercentageThe transaction cash flows follow a shifting interest structure that allows subordinated bonds to receive principal payments under certain defined scenarios. Because a shifting interest structure allows subordinated bonds to pay down over time as the loan pool balance declines, senior bonds are exposed to eroding credit enhancement over time, and increased performance volatility as a result. To mitigate this risk, the transaction provides for a senior subordination floor of 0.95% of the cut-off date pool balance, and as subordination lock-out amount of 0.95% of the cut-off date pool balance. The floors are consistent with the credit neutral floors for the assigned ratings according to our methodology.COVID-19 Impacted BorrowersAs of the cut-off date, mortgagors with respect to approximately 0.17% of the mortgage loans by UPB had previously been, but no longer were, subject to a COVID-19 related forbearance plan. In addition, as of the cut-off date, each such mortgage loan had become current.In the event the servicer enters into a forbearance plan with a COVID-19 impacted borrower, the servicer will report such mortgage loan as delinquent (to the extent payments are not actually received from the borrower) and the servicer will be required to make advances in respect of delinquent interest and principal (as well as servicing advances) on such loan during the forbearance period (unless the servicer determines any such advances would be a nonrecoverable advance). At the end of the forbearance period, if the borrower is able to make the current payment on such mortgage loan but is unable to make the previously forborne payments as a lump sum payment or as part of a repayment plan, then such principal forbearance amount will be recognized as a realized loss. At the end of the forbearance period, if the borrower repays the forborne payments via a lump sum or repayment plan, advances will be recovered via the borrower payment(s). In an event of modification, Shellpoint will recover advances made during the period of COVID-19 related forbearance from pool level collections.Any principal forbearance amount created in connection with any modification (whether as a result of a COVID-19 forbearance or otherwise) will result in the allocation of a realized loss and to the extent any such amount is later recovered, will result in the allocation of a subsequent recovery.Factors that would lead to an upgrade or downgrade of the ratings:DownLevels of credit protection that are insufficient to protect investors against current expectations of loss could drive the ratings down. Losses could rise above Moody's original expectations as a result of a higher number of obligor defaults or deterioration in the value of the mortgaged property securing an obligor's promise of payment. Transaction performance also depends greatly on the US macro economy and housing market. Other reasons for worse-than-expected performance include poor servicing, error on the part of transaction parties, inadequate transaction governance and fraud.UpLevels of credit protection that are higher than necessary to protect investors against current expectations of loss could drive the ratings up. Losses could decline from Moody's original expectations as a result of a lower number of obligor defaults or appreciation in the value of the mortgaged property securing an obligor's promise of payment. Transaction performance also depends greatly on the US macro economy and housing market.MethodologyThe principal methodology used in rating all classes except interest-only classes was "Moody's Approach to Rating US RMBS Using the MILAN Framework" published in April 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1201303. The methodologies used in rating interest-only classes were "Moody's Approach to Rating US RMBS Using the MILAN Framework" published in April 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx? docid=PBS_1201303 and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in February 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx? docid=PBS_1111179. Please see the list of ratings at the top of this announcement to identify which classes are interest-only (indicated by the *). Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies. REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1277446.The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody's evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Philip Rukosuev Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Sang Shin VP - Sr Credit Officer/Manager Structured Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. ​