While second lien mortgages typically represent credit risk to a portfolio, RCKT Mortgage Trust 2024-CES3's pool of fixed rate mortgages collateralized by $447.6 million of mortgage-backed securities was underwritten consistent with ability-to-repay rules by experienced originators and servicers.
The proceeds from the underlying assets of the transaction are also in line with Fannie Mae's guidelines, according to Kroll Bond Rating Agency (KBRA).Bank of America Merrill Lynch, Barclays, BMO Capital Markets and Citigroup Global Markets are acting as managers on the deal, according to the Asset Securitization Report deal database, which also noted that the transaction is expected to close on May 31.
Available price estimates put AAA-rated A1A bonds at 170 basis points above the three-month I-curve, while M2 bonds are at 245-250 basis points against the same benchmark.
Woodward Capital Management and FirstKey Mortgage are sponsors of the deal, which has a final maturity date of May 2044, according to KBRA analysts. The capital structure features initial exchangeable notes between class A, mezzanine and B1 notes. The super senior and senior support tranches will be repaid to bondholders on a pro rata basis, while the A2 through B3 notes will be repaid sequentially, according to the rating agency.
The underlying assets consist of 5,541 loans with an average balance of $80,781, a weighted average (WA) original term of 233 months, and a WA coupon of 9.3%. The majority of the loans (93.9%) are within 15 to 30 years. According to KBRA, the pool is highly concentrated, with the top 10 underlying loans accounting for 59.8% of the pool, and California, Florida, Georgia, North Carolina, and New Jersey accounting for 41.5%.
According to KBRA, the bonds' credit enhancement rates are 20.0% for A1A bonds and 1.65% for B2 bonds.
The rating agencies have assigned AAA ratings to A1 to A1B bonds, AA+ to A2 and A3 bonds, A+ to A4 bonds, BBB+ to A5 bonds, A+ and BBB+ to M1 and M2 bonds respectively, BBB+ to A5 bonds, BB+ to B1A to BX1B bonds and B+ to the B2 tranche.
Fitch Ratings has rated the A1 through A1B bonds AAA, the A2 and A3 tranches AA, the A3 and A4 tranches AA and A, and the A5 tranche BBB. The M1 and M2 bonds are rated A and BBB, the B1 through BX1B bonds BB and the B2 tranche BB.