A pool of fully amortizing, fixed-rate second-lien mortgages with 10- and 20-year terms—predominantly the latter—will provide revenue to repay $445 million in mortgage-backed securities from the RCKT Mortgage Trust 2024-CES4.
Given future home price declines and a few other characteristics, the collateral pool has high expected loss severity. ¬Yet Rocket Mortgage's experience as a mortgage loan originator and servicer, enhances the credit on the notes, according to Kroll Bond Rating Agency, which assigns ratings to the A, M, B and XS notes. Rocket Mortgage's home equity loan program is relatively new, but the lender originates second-lien loans with similar underwriting as its first-lien loans, through a technology-driven process.
Fitch Ratings says Rocket is contributing all 5,455 closed-end loans in the collateral pool, and it is an 'above average' originator. Fitch also says one of the deal's positive highlights is that 27.0% of the assets by unpaid principal balance, or 24.9% by loan count, were subject to third-party due diligence from AMC Diligence.
The notes have an average balance of $81,576, and on a weighted average (WA) basis they have a coupon of 9.4%, and a WA original FICO score of 738. Also, borrowers are well capitalized. On a non-zero WA basis, the borrowers' annual income reached $160,305, have a debt-to-income ratio of 38.7%, and only 9.5% of them are self-employed, KBRA said.
The capital structure will repay investors through a senior-subordinate, sequential order, while the A1A and A1B will repay noteholders on a pro-rata basis, according to KBRA.
All the notes have a legal final maturity date of June 2044, Fitch says. They also benefit from credit enhancement composed of excess spread. Enhancement levels include 20%, 16.4%, 12.3%, 8.45%, 5.1%, 2.7% and 1.4% on the A1A, A1B, A2, A3, M1, B1 and B2 notes, respectively.
KBRA assigns AAA to the A1A and A1B notes; AA to the A2 notes; A to the A3 notes; BBB+ to the M1 notes; BB+ to the B1 notes; and B to the B2 notes. Fitch, meanwhile, assigns AAA to the A1A and A1B notes; AA to the A2 notes; A to the A3 notes; BBB to the M1 notes; BB to the B1 notes; and B to the B2 notes.
