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Investments

Investors jump on Fannie Mae risk-sharing deal

Spreads keep narrowing

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Fannie Mae priced its second risk sharing deal yesterday, its first of the year, with more expected to come.

Today, on the first day of secondary trading, the deal met with strong investor demand, judging by numbers provided by Interactive Data.

According to Fannie Mae price guidance was originally circulated by the underwriters at +160/170 for the M-1 tranche and +440/450 for M-2 tranche. These mezzanine tranches are just a small slice of the overall deal, pooling credit risk otherwise provided by Fannie Mae.

The deals are meant to spur private investor money back into housing, and it appears to be working.

Indeed, signs of strong investor demand became evident from the start, as actual pricing levels came in tighter at +160 and +440 respectively.

Comparatively, the first deal that rolled out in November featured an M-1 tranche that priced at one-month 200 basis points above LIBOR, while its M-2 tranche came in at one-month 525 basis points plus.

"Today's trading activity has been very brisk on the break with investor demand reportedly strong, particularly for the M2 tranche," said Interactive Data. "As of mid-day, indicative bids appear to have tightened significantly since initial pricing to +152 and +427."

Breaking the second transaction down, the deal is linked to more than 122,000 single-family mortgages with an outstanding unpaid principal balance of $29.3 billion. This reference pool is also made up of a random selection of eligible loans acquired in the fourth quarter of 2012. The loans associated with it include fixed-rate, 30-year term, fully amortizing mortgages with LTV ratios between 60% and 80%.

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