A pool of second-lien loans will secure a $246.2 million issuance of mortgage-backed notes from a large pool of closed-end, second-lien loans originated by Rocket Mortgage, which has a stronger credit profile than legacy CES program transactions.
Although Rocket Mortgage originated the loans, Woodward Capital Management and FirstKey Mortgage are actually the deal sponsors and acquired the collateral from the Detroit-based specialty mortgage lender. Rocket is also acting as the servicer and representation and warranty provider on the repayment of notes, according to ratings analysts from Fitch Ratings.
Some 3,430 loans comprise the mortgage collateral pool, which has seasoning of about three months in aggregate, according to Fitch. Borrowers have a strong credit profile made up of a Fitch model 741 FICO score, a 37% debt-to-income ratio, and moderate leverage of 75% sustainable loan-to-value ratio (LTV).
A few other aspects of the deal work in its favor from a credit standpoint. For one, AMC Diligence conducted a third-party due diligence review on 32% of the portfolio by unpaid principal balance, the rating agency said. After applying a credit for that due diligence process, Fitch reduced the 'AAA'-level loss expectation by 20 basis points. That Rocket Mortgage originated the loans confers a well-controlled operational risk. Original loan maturities, initially less than or equal to 240 months, are also a plus, according to Fitch. This allows for a faster buildup of equity, and the loans' collective shorter life span reduces default and delinquency risks as they approach maturity.
The second-lien loan repayment priority is a potential ratings negative, however, according to Fitch, which assumed no recovery and a 100% loss severity. Second lien loans have a troubled performance history, especially in economic stress scenarios like the one the U.S. economy appears to be heading into.
On average the loans have a balance of $71,783 and all of them are considered clean current. They are also fixed-rate, the rating agency said.
Fitch expects to assign 'AAA' ratings to the A-1A and A-1B notes; 'AA' to the A-2 notes; 'A' to the M-1 class; 'BBB' to the M-2 notes; 'BB' to the B-1 notes; and 'B' to the B-2 class of notes. All of the notes have a June 2043 legal final maturity date.
