Investments

Fannie Mae offloads more credit risk in latest risk-sharing deal

Announces pricing for deal featuring first-loss position

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As part of its ongoing effort to reduce the taxpayers’ burden, Fannie Mae announced last week that it offloaded more credit risk in its latest Connecticut Avenue Securities risk-sharing deal.

According to Fannie Mae, its latest Connecticut Avenue Securities deal, CAS 2016-C01, is its first to offer investors a portion of the first-loss position, further reducing taxpayer exposure to credit losses.

The reference pool for the CAS 2016-C01 transaction contains more than 128,000 single-family mortgage loans with an outstanding unpaid principal balance of approximately $30 billion, Fannie Mae said.

The CAS 2016-C01 reference pool consists of eligible loans acquired from January through February 2015. The loans included in the transaction are fixed-rate, generally 30-year term, fully amortizing mortgages, Fannie said.

According to a release from Fannie, the underlying loans in CAS 2016-C01were underwritten using “strong credit standards and enhanced risk controls.”

Additionally, the reference pool is subdivided into two loan groups by original loan-to-value ratio. Group one includes loans with original LTV ratios between 60.01% and 80%.

Group two includes loans with original LTV ratios between 80% and 97%.

According to Fannie Mae, CAS 2016-C01 priced as follows:

  • Pricing for the 1M-1 tranche was one-month LIBOR plus a spread of 195 basis points
  • Pricing for the 2M-1 tranche was one-month LIBOR plus a spread of 210 basis points
  • Pricing for the 1M-2 tranche was one-month LIBOR plus a spread of 675 basis points
  • Pricing for the 2M-2 tranche was one-month LIBOR plus a spread of 695 basis points
  • Pricing for the 1B tranche was one-month LIBOR plus a spread of 1175 basis points

Fannie Mae said that the $945.1 million note offering is scheduled to settle on Thursday, Feb. 18th. 

The deal is Fannie Mae’s tenth risk-sharing deal under its Connecticut Avenue Securities umbrella.

After this transaction is completed, Fannie Mae will have issued $13.4 billion in notes and transferred a portion of the credit risk to private investors on single-family mortgage loans with an outstanding unpaid principal balance of more than $467 billion since the program began in 2013.

In total, since 2013, Fannie Mae has transferred a portion of the credit risk on more than half a trillion dollars in single-family mortgages through all of its risk transfer programs.

“Fannie Mae continues to focus on the long term strength and stability of our Connecticut Avenue Securities program,” said Laurel Davis, vice president of credit risk transfer, Fannie Mae.

“We continue to work to build a deeper market for credit risk and are pleased with investor participation in the program,” Davis said. “We’ve built a robust set of credit risk management tools that benefit Fannie Mae and the investors in our credit risk transfers. Fannie Mae will continue to innovate in the credit risk management space so that we can build a better housing finance system for the future.”

According to Fannie Mae, JP Morgan Securities, LLC was the lead structuring manager and joint bookrunner and Citigroup Inc was the co-lead manager and joint bookrunner on this transaction.

Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Capital, Credit Suisse, and Wells Fargo Securities were co-managers.

Additionally, CastleOak Securities, L.P. and Loop Capital Markets LLC participated as selling group members.

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