Fannie Mae priced its third credit-risk sharing deal on Wednesday. The $1.6 billion note is Fannie’s largest risk-sharing offering to date.

The offering, Series 2014-C02, is the third in Fannie’s Connecticut Avenue Securities series. Fannie noted that this offering includes reference loans with original loan-to-value ratios of up to 97%.  Previous C-deal offerings included reference loans with up to 80% original LTV ratios.

The offering is scheduled to close on May 27.

The reference pool includes nearly 255,000 single-family mortgage loans with an outstanding unpaid principal balance of $60.8 billion. According to Fannie’s report, the loans included in this transaction are fixed-rate, generally 30-year term, fully amortizing mortgages and the reference pool is subdivided into two loan groups by original LTV.  “Group one includes loans with original LTV ratios between 60.01% and 80%,” the report states. “Group two includes loans with original LTV ratios between 80.01% and 97%.”

Pricing for the 1M-1 tranche was one-month LIBOR plus a spread of 95 basis points.  Pricing for the 1M-2 tranche was one month LIBOR plus a spread of 260 basis points.  Pricing for the 2M-1 tranche was one-month LIBOR plus a spread of 95 basis points.  Pricing for the 2M-2 tranche was one month LIBOR plus a spread of 260 basis points.

By comparison, the last Fannie deal of this kind had M-1 tranche pricing at one-month LIBOR plus a spread of 160 basis points. Pricing for the M-2 tranche equaled one month LIBOR plus a spread of 440 basis points. That the deal priced tighter shows a growing investor demand.

“We’re proud to bring a strong transaction with more varied product to market with this deal,” said Laurel Davis, vice president for credit risk transfer at Fannie Mae.  “As the market moves from a refinance market to a purchase money market, it is more common to see loans with higher LTVs.  Loans with LTVs over 80 have always been part of Fannie Mae’s business and adhere to our strong underwriting and credit standards.  We expect to keep coming to the market with ongoing, regular issuance under the Connecticut Avenue Securities program.”

Fannie reports that more than 60 broadly-diversified investors participated in the offering, including asset managers, mutual funds, pension funds, hedge funds, insurance companies, banks, and REITs.

Fannie expects the 1M-1 tranche to receive ratings of BBB from Fitch Ratings and BBB- from Standard & Poor’s Ratings Service.  The 2M-1 tranche is expected to receive ratings of BBB+ by Fitch and BB by Standard & Poor’s Ratings Service.  The 1M-2 tranche and 2M-2 tranche were not rated.

Fitch’s presale ratings notes provided reasoning for its ratings. “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,” Fitch’s report said. “Because of the counterparty dependence on Fannie Mae, Fitch's expected rating on the 1M-1 and 2M-1 notes will be based on the lower of: the quality of the mortgage loan reference pool and credit enhancement available through subordination; and Fannie Mae's Issuer Default Rating. The 1M-1 and 2M-1 notes will be issued as uncapped LIBOR-based floaters and will carry a 10-year legal final maturity.”

Fannie Mae retains the first loss and senior piece of the structure, as well as a vertical slice of the M1 and M2 tranches in both groups in order to align its interests with investors throughout the life of the deal.

Most Popular Articles

CFPB to consider changing or eliminating TRID rule

The CFPB has been taking a long, hard look at some of its rules and regulations. Next up on its list to review is TRID, and it looks like eliminating the rule entirely is not off the table.

Nov 20, 2019 By

Latest Articles

Americans are staying put in record numbers

The share of people who moved in the 12 months through March fell to the lowest level on record, adding to the woes of a housing market plagued by supply shortages.

Nov 21, 2019 By
3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please