Rocket Mortgage returns to sponsor $445 million

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.

BofA Securities and Citigroup Global Markets are joint bookrunners on the deal, which is slated to close on May 22.

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.