Mortgage giant Fannie Mae is working on another risk-sharing transaction for 2014, keeping in line with the firm's plan to bring private capital back to the mortgage market.
While executives for the enterprise admitted that no further transactions will take place this year, the mortgage giant plans on issuing additional deals to transfer more credit risk to the private sector, reducing its footprint in the mortgage market.
"FHFA is pleased that Fannie Mae is nearing completion of another risk-sharing transaction – the first Connecticut Avenue Securities or ‘C-deal’ transaction," stated Federal Housing Finance Agency current acting director Ed DeMarco.
He added, “The C-deal series will be direct debt transactions in which Fannie Mae issues bonds to investors, allowing private capital to assume a portion of the mortgage credit risk taken on by Fannie Mae."
The C-deal series successfully priced to a diverse group of private investors, ranging from asset managers to real estate investment trusts and credit unions, explained Fannie Mae vice president Laurel Davis.
"We saw a wider variety of investors after feedback was given after Freddie’s first transaction that providing credit ratings would draw in a wider variety of investors," she said.
A reference pool of more than 112,000 single-family mortgages with an outstanding unpaid principal balance of $27 billion backs the deal.
Similarly, Freddie Mac said future deals will be rated, and that the timetable to do so for its inaugural risk-sharing transaction was not implemented.
Meanwhile, Fannie Mae plans to move toward more traditional credit-linked structures.
The recent deal featured debt issuance from the government-sponsored enterprise because of recent regulatory changes that came as a result of Dodd-Frank.
The goal is that future deals will look the same between the debt and credit-linked notes as the Structured Agency Credit Risk (STACR) bonds, but it will take a more traditional structure, Davis pointed out.
Going forward, the GSE is interested in testing market interest and price discovery on other parts of the capital structure on the first loss, explained Andrew Bon Salle, Fannie Mae's executive vice president for underwriting, pricing and capital markets.
"Overall, we’re extremely happy with the transaction and all indications point to the deal being very successful," he concluded.