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Fannie MaeÕ latest risk-sharing transaction prices tight

Carries $45B in unpaid principal balance

Fannie Mae announced that it priced its latest credit risk-sharing transaction under its Connecticut Avenue Securities series, Series 2015-C02, which carried an unpaid principal balance of approximately $45 billion.

The $1.449 billion note offering priced Tuesday and is scheduled to settle on May 27.  

Pricing for the 1M-1 tranche was one-month LIBOR plus a spread of 115 basis points.  Pricing for the 1M-2 tranche was one-month LIBOR plus a spread of 400 basis points. 

Pricing for the 2M-1 tranche was one-month LIBOR plus a spread of 120 basis points.  Pricing for the 2M-2 tranche was one-month LIBOR plus a spread of 400 basis points.  

This is tighter compared to Fannie’s last Connecticut Avenue offering, which priced as follows:

  • Pricing for the deal’s 1M-1 tranche was one-month LIBOR plus a spread of 195 basis points. Pricing for the 1M-2 tranche was one-month LIBOR plus a spread of 490 basis points.
  • Pricing for the 2M-1 tranche was one-month LIBOR plus a spread of 210 basis points. Pricing for the 2M-2 tranche was one-month LIBOR plus a spread of 500 basis points.

This reference pool consists of eligible loans acquired from December 2013 through April 2014, part of Fannie Mae’s new book of business underwritten using strong credit standards and enhanced risk controls.  

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 80.00%.  Group two includes loans with original LTV ratios between 80.01% and 97.00%.

According to Fitch Ratings, competing private-label mezzanine RMBS often do not receive a full pro-rata share of the pool's unscheduled principal payment until the tenth year.

The Fannie Mae deal will offer a competitive advantage as the M-1 notes can receive a full pro-rata share of unscheduled principal immediately, as long as a minimum credit enhancement level is maintained. Keeping that minimum will most likely not be a challenge for a government-sponsored enterprise.

The Moody's Investors Service rating on the transaction is based on the results of both quantitative and qualitative analyses This included a quantitative evaluation of the credit quality of the reference pool and the impact of the structural mechanisms on the credit enhancement to the notes. In addition, Moody's made qualitative assessments of counterparty performance.

The complete rating action is as follows:

  • $266 million of Class 1M-1 notes, Assigned (P) A3 (sf)
  • $226.2 million of Class 2M-1 notes, Assigned (P) Baa1 (sf)

“We were pleased to bring another strong CAS issuance to the market and were pleased with the broad participation and the strength of the book. This deal reinforces continued investor interest in the consistency of the CAS program and interest in opportunities for exposure to the national housing market,” said Laurel Davis, vice president for credit risk transfer at Fannie Mae.

“We expect to continue to come to market with programmatic issuance on a quarterly basis, subject to market conditions, and look forward to preparing the market for our transition to an actual loss structure late this year. In the meantime, we remain committed to building liquidity and stability for the CAS program by offering regular, predictable issuance and a consistent deal structure and size. This approach has generated positive feedback from investors,” Davis continued. 

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