Rocket Mortgage and FirstKey Mortgage have entered the RMBS market with a co-sponsored $451.4 million deal pooling second-lien mortgages that are likely to see little to recovery should they default.
All 5,142 loans in the transaction, originated entirely by Rocket, are second-lien loans that KBRA describes in its December 10 pre-sale report as likely to experience high levels of loss severity upon default, even with low or no home price depreciation, due to the liens' junior positions. The rating agency adds that some loans in the pool have relatively low combined loan-to-value ratios, and so may achieve some level of recovery, although minimal.
On the plus side, Rocket is an experienced originator of both agency and nonagency mortgages, according to KBRA. It launched its residential home equity loan program in 2022, originating the second-lien loans in the securitization similarly to its first-lien mortgages, through a multi-step, technology-driven process.
As of KBRA's April 2024 review, Rocket services 2.4 million loans with an aggregate balance of more than $510 billion, and the lender is an approved Fannie Mae, Freddie Mac, and Ginnie Mae servicer.
The RCKT Mortgage Trust 2024-CES9 transaction is divided into 11 tranches, seven of which are rated by KBRA, starting with a $361.1 million tranche rated AAA that holds a coupon of 5.80% and credit enhancement of 20.0%. On the other end of the rating spectrum is a $5.9 million tranche rated B+ that carries a coupon of 8.747% and credit enhancement of 1.3%
Underwriters and bookrunners on the deal are Citigroup Global Markets, BofA Securities, Wells Fargo Securities, StoneX Financial, and J.P. Morgan Securities.
Another deal strength, KBRA says, is the "notable" geographic diversification at both the state and regional levels. However, the rating agency adds, it has observed notable home price fluctuations nationally and regionally since mid-2022, with some areas remaining below peak prices and others holding more steady or retracing declines.
"The potential for a more pronounced recessionary environment increases the likelihood for more meaningful home price declines," KBRA says, adding, "Home price declines increase the risk of loss on the underlying collateral."
