Woodward Capital Management, an affiliate of Rocket Mortgage, is raising $369.9 million in mortgage-backed securities (MBS) backed by a pool of newly originated, closed-end and second-lien mortgages that Rocket originated.
The transaction, RCKT 2024-CES1, has a slightly larger asset pool of loans, 5,261, than a previous transaction from the trust, the RCKT 2023-CES3, which had 4,846 loans, according to ratings analysts at Kroll Bond Rating Agency. The collateral is made up of fully amortizing, fixed-rate mortgages whose terms are almost entirely 20-year (94.8%) and 10-years (5.2%), KBRA said. All of the loans are cash out and second-lien, underwritten with Ability-to-Repay rules, and consistent with Fannie Mae guidelines, the rating agency said.
RCKT 2024-CES1 will repay the notes sequentially, and the classes are exchangeable, KBRA said. Although second-lien loans have a high expected rate of loss severity, and the portfolio is exposed to potential home price declines, KBRA noted several attributes that offset these negative characteristics. The mortgages have an average balance of $70,312, and an average coupon, on a weighted average (WA) basis, of 10.06%. Also on a WA basis, the borrowers have an original credit score of 739.
Other characteristics that counteract potentially negative credit aspects is a WA debt-to-income ratio of 37.2%, a non-zero WA annual income of $155,246, and they have WA liquid reserves of $40,671, according to the rating agency. Also, just 6.1% of borrowers in the pool are self-employed, suggesting that any variability of cashflow to the notes will be limited.
The pool appears to be geographically diverse, with 12.9% of the mortgaged homes located in California, 10.1% located in Florida and 5.2% located in Georgia. On a more cumulative basis, the top 10 loans accounts for some 57.0% of the pool.
Further, the notes will receive no principal and interest advancement, which creates liquidity risk, KBRA said.
Credit enhancement ranges from 20.0% on the A1A notes to 0.25% on the B2 notes. KBRA assigns ratings of AAA to the A1A and A1B notes; AA+ to the A2 notes; A to the M1 notes; BBB+ to the M2 notes; BB+ to the B1 notes and B+ to the B2 notes.
