KBRA assigns preliminary ratings to new mortgage-backed notes from Rithm Capital

In the United States, Kroll Bond Rating Agency (KBRA) has recently assigned preliminary ratings to eight classes of mortgage-backed notes issued by New Residential Mortgage Loan Trust 2024-NQM3, a $272.5 million non-prime residential mortgage-backed securities (RMBS) transaction sponsored by Rithm Capital Corp. This transaction, known as NRMLT 2024-NQM3, features a pool of 538 residential mortgages, with the majority of the underlying loans originated by NewRez LLC (71.4%) and Champions Funding, LLC (12.2%). The borrowers involved possess a weighted average (WA) original credit score of 751, along with a WA original loan-to-value (LTV) ratio and a WA combined LTV (CLTV) of 72.0%. Notably, about 7.7% of this pool consists of loans that have an initial interest-only payment period. KBRA's rating process took into account comprehensive loan-level analyses conducted through its Residential Asset Loss Model (REALM), which examined the quality and risk associated with the mortgage pool. This was complemented by third-party loan file due diligence, which enhanced the reliability of the assessment. Additionally, cash flow modeling analyses of the transaction's payment structure were performed, allowing KBRA to thoroughly understand the financial dynamics at play. The evaluation also included reviews of key transaction parties and an appraisal of the transaction's legal structure, ensuring that all elements aligned with regulatory and market standards. The implications of these ratings are significant. They not only affect the operational strategies of the sponsoring entity, Rithm Capital Corp., but also influence investor confidence in the ongoing market for non-prime RMBS products. As a publicly traded real estate investment trust (REIT), Rithm Capital's ongoing viability depends greatly on maintaining favorable credit ratings for its subsequent debt offerings. KBRA's ratings reflect the agency’s comprehensive methodology for assessing RMBS transactions, emphasizing due diligence and a thorough understanding of the underlying assets. As more transactions like this one emerge in the market, stakeholders are poised to watch closely how trends in credit ratings shift. The entirety of the mortgage market is affected by these ratings, particularly as fluctuations can lead to increased investment or divestment from particular financial products. Furthermore, as market participants and policymakers engage with these forecasts, they can better navigate the complexities of residential lending, particularly in non-prime segments. Overall, the ratings signify a cautious optimism for both Rithm Capital and the broader market, as they capitalize on opportunities within the non-prime mortgage landscape.