Fannie Mae risk-sharing deal gets triple-B rating

Is a spread fraction of $28 billion worth the risk?

Fitch Ratings said it intends to measure the inaugural risk transfer transaction from Fannie Mae, called Connecticut Avenue Securities Series 2013-C01.

The move follows a similar deal from Freddie Mac.

The mezzanine tranche, which incorporates the private market portion of the $28 billion dollar reference pool, is comprised of 117,745 recent vintage Fannie Mae mortgages.

The average loan-to-value is above 75% with debt-to-income ratios averaging below 32%. The average credit score is 765.

Fitch said it will likely rate the $337.5 million mezzanine tranche triple-B. The other 97% of the deal is considered general senior unsecured obligations of Fannie Mae and will not be rated. This is typical, because of the conservatorship status of the government-sponsored enterprise and the perceived federal support.

In regards to the risk-sharing portion, Fitch cited a low level of third-party due diligence in its ratings approach. Only 608 loans out of the 100K+ were reviewed; a small portion.

Fitch did not seem overly concerned, however.

"While the transaction structure simulates the behavior and credit risk of traditional RMBS mezzanine and subordinate securities, Fannie Mae will be responsible for making monthly payments of interest and principal to investors based on the payment priorities set forth in the transaction documents," Fitch said in its report.

Fitch also warned the ratings could be downgraded in the instance of Fannie Mae going into receivership.

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