Fannie Mae broke new ground earlier this year when it announced that it would be issuing a credit risk-sharing transaction featuring the actual-loss position.

Fannie Mae announced the pricing of that first actual loss credit risk-sharing deal Wednesday, and said that offering the actual-loss position will be the standard for its Connecticut Avenue Securities series moving forward.

Since the risk-sharing program began, Fannie Mae has completed nine CAS deals, issued $12.44 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 over $437.55 billion.

Offloading the credit risk increases the role of private capital in the mortgage market and reduces taxpayer risk, Fannie Mae said.

By the end of 2015, Fannie Mae said that it anticipates it will have transferred a portion of the credit risk on approximately half a trillion dollars in single-family mortgages through all of its risk-transfer programs.

“The move to an actual-loss structure for CAS places even greater importance on how Fannie Mae manages credit risk, as investors now directly benefit from our comprehensive credit risk management approach,” said Laurel Davis, vice president for credit risk transfer at Fannie Mae.

“Because we are actively involved from pre-loan delivery through property disposition, investors have greater confidence in the loans in the CAS reference pools and their opportunity to invest in them,” Davis added.

“The fact that we are setting strong standards and managing the credit risk of loans throughout the lifecycle has helped investors become comfortable and re-enter the residential credit market,” Davis continued. “We look forward to another strong year for the CAS program in 2016.”

Until the release of its first actual-loss deal, Fannie Mae’s risk-sharing deals operated on a fixed severity schedule in calculating write-downs, with credit events occurring generally when reference pool loans become 180 days delinquent. Under the actual loss framework, any losses are passed through based on the realized losses of the loans following final disposition.

Fannie Mae also announced the pricing of CAS 2015-C04, Fannie Mae’s first actual-loss deal.

According to Fannie Mae, the transaction included participation from a diversified group of both new and existing investors.

Pricing for the 1M-1 tranche was one-month LIBOR plus a spread of 160 basis points. Pricing for the 2M-1 tranche was one-month LIBOR plus a spread of 170 basis points. Pricing for the 1M-2 tranche was one-month LIBOR plus a spread of 570 basis points. Pricing for the 2M-2 tranche was one-month LIBOR plus a spread of 555 basis points.

Fannie Mae retained 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. 

Bank of America Merrill Lynch was the lead structuring manager and joint bookrunner and Barclays Capital was the co-lead manager and joint bookrunner on this transaction. Citigroup, Credit Suisse, and JP Morgan were co-managers.

Drexel Hamilton and Loop Capital also participated as selling group members.