RCKT Mortgage Trust 2024-CES3 sells $447.6 million in MBS to investors

Second lien priority mortgages are usually a credit risk to portfolios, but the pool of fixed-rate home loans securing the $447.6 million in mortgage-backed securities from RCKT Mortgage Trust 2024-CES3 were underwritten in line with ability-to-repay rules by an experienced originator and servicer.

The income from the deal's underlying assets is also consistent with Fannie Mae guidelines, according to Kroll Bond Rating Agency (KBRA). Bank of America Merrill Lynch, Barclays, BMO Capital Markets and Citigroup Global Markets are managers on the deal, according to Asset Securitization Report's deal database, also noting that the deal is slated to close on May 31.

Available pricing estimates put the AAA-rated A1A notes at three-month I-curve plus 170 basis points, and the M2 notes at 245-250 bps over the same benchmark.

Woodward Capital Management and FirstKey Mortgage are sponsoring the transaction, where May 2044 is the last of the final maturity dates, according to analysts at KBRA. The capital structure features initial exchangeable notes among the class A, mezzanine and B1 notes. The super senior and senior support tranches will repay noteholders on a pro-rata basis, while the A2 through B3 notes will repay sequentially, according to the rating agency.

The underlying assets are composed of 5,541 loans with an average balance of $80,781, with weighted average (WA) original terms of 233 months, and a WA coupon of 9.3%. The bulk of the loans, 93.9%, fall within 15 to 30 years. The pool is fairly concentrated, with the top 10 underlying loans accounting for 59.8% of the pool, and California, Florida, Georgia, North Carolina and New Jersey representing 41.5%, according to KBRA.

Credit enhancement on the notes range from 20.0% on the A1A notes to 1.65% on the B2 notes, KBRA said.

The rating agency assigns AAA to the A1 through A1B notes; AA+ to the A2 and A3 notes; A+ to the A4 notes; BBB+ to the A5 notes; A+ and BBB+ to the M1 and M2 notes, respectively; BBB+ to the A5 notes; BB+ to the B1A through BX1B; and B+ to the B2 tranche.

Fitch Ratings assigns AAA to the A1 through A1B notes; AA to the A2 and A3 tranches; AA and A to the A3 and A4 tranches and BBB to the A5 tranches. The M1 and M2 notes have ratings of A and BBB; while the B1 through BX1B received a BB ratings and the B2 tranche.