Revenue from portfolio of closed-end, second lien loans will secure $548.2 million in residential mortgage-backed securities (RMBS) from Woodward Capital Management and CMF Loan, raising the funds through RCKT Mortgage Trust 2026-CES1.
Underwriting on the loans follows ability-to-repay rules, and income requirements that follow Fannie Mae rules, according to Kroll Bond Rating Agency. The deal is market mostly by positive credit characteristics which mitigate several drawbacks including potential future home price declines, KBRA noted.
The deal will sell the notes through a structure of about nine tranches of classes A, M and B, KBRA said. Analysts at Fitch Ratings says all the notes have a legal final maturity of January 2056.
Bank of America Merrill Lynch, J.P. Morgan Securities and Morgan Stanley are slated to close on January 23, according to Asset Securitization Report's deal database.
Rocket Mortgage originated the 5,839 loans in the pool—which have an average balance of $93,902—and will service them, according to the rating agency.
Despite the loans' second-lien status, which have a higher expected loss severity, the loans themselves display several positive credit characteristics. For one, borrowers have a weighted average (WA) original credit score of 745, KBRA said.
The A1A and A1B notes benefit from credit enhancement levels of 20.0% and 15.6%, respectively. The A2 through B2 notes benefit from credit enhancement levels of 11.50% through 0.75%, Fitch said.
ASR's database notes that the A1B and A1B notes, all of which were rated AAA from Fitch and KBRA will offer coupons of 5.03% and 5.18%, respectively.
Notes will repay investors through a combination of pro-rata on the super senior and senior support tranches, and sequentially for the rest of the tranches, KBRA said.
Fitch notes that the structure includes a provision to use monthly excess cash flow as principal, first, to repay any current or previously allocated cumulative applied realized losses.
Another feature is a step-up coupon of 1.00% after the 48th payment date, Fitch said.
Fitch assigns ratings ranging from AA on the A2 notes to B on the B2 notes. KBRA's ratings range from AA+ on the A2 notes to B+ on the B2 notes.
