According to Fitch Ratings, the target closing date for the deal is July 10, 2024. The sponsor is Loan Funding Structure III.
Approximately 87.2% of the loans in the pool were originated by Citadel Servicing Corporation (d/b/a Acra Lending), 12.3% by First Guaranty Mortgage Corporation, and the remaining 0.5% by various originators. Approximately 87.2% of the loans will primarily be serviced by Citadel (primarily subserviced by ServiceMac) and the remaining 12.8% of the loans will be serviced by Nationstar Mortgage (d/b/a Rushmore).
Fitch views the pool's home price values as 11.3% above a long-term sustainable level, and says housing affordability is at its worst in decades, driven by high interest rates and elevated home prices.
The loans are seasoned at approximately 32 months in aggregate, calculated by Fitch as the difference between the origination date and the cutoff date. Approximately 93.3% of the pool loans were underwritten to less than full documentation, as determined by Fitch, and approximately 47.1% were underwritten to 12-month or 24-month bank statement programs for verifying income.
Fitch says the borrowers have a strong credit profile, a 731 weighted-average model FICO score, a 48% debt-to-income ratio, including mapping for debt service coverage ratio loans, and low leverage of 63% for a sustainable loan-to-value ratio.
Of the loans, 56% are non-qualified mortgages, 0.4% are safe-harbor qualified mortgages, 0.07% are rebuttable presumption qualified mortgages (higher priced qualified mortgages), and the ability to repay/qualified mortgage rule is not applicable for the remaining portion.
Interest rates for classes A-1A, A-1B, A-2 and A-3 will be equal to the lesser of the fixed rate or the net weighted average coupon, Fitch says. Interest rates for all other classes will be equal to the NWAC, which is initially expected to be 4.78%.
The structure distributes principal pro rata among the senior notes while shutting out subordinate bonds from principal until all senior classes are reduced to zero. If cumulative loss trigger or delinquency trigger events occur in a given period, principal will be distributed sequentially to class A-1A, A-1B, A-2 and A-3 notes until they are reduced to zero.
The A-1A notes have 25% credit enhancement, the A-1B notes have 20.95%, the A-2 notes have 15.45%, and the A-3 notes have 9.35% credit enhancement.
Fitch's expected rating for the A-1A and A-1B notes is AAA. It expects to rate the A-2 notes as AA, A-3 as A, M-1 as BBB, B-1 as BB, and B-2 as B. It didn't rate the remaining notes.
