Fannie Mae rolling out its third CRT offering of 2022

The new deal involves a $1.24 billion note offering backed by a $44.4 billion reference pool

HW+ Fannie Mae

Fannie Mae is off to steady start on its path toward issuing $15 billion in notes this year through its Connecticut Avenue Securities (CAS) real estate mortgage investment conduit, or REMIC.

The agency is about to unveil its third deal this year through its CAS credit-risk transfer vehicle. The March offering, CAS Series 2022-R03, involves transferring a portion of the agency’s loan-portfolio risk through a $1.24 billion note offering backed by a reference loan pool of 150,395 primarily single-family mortgages valued at $44.4 billion.

Private investors, through a credit-risk transfer (CRT) transaction, participate with government-sponsored enterprise (GSE) Fannie Mae in sharing a portion of the mortgage credit risk in the reference loan pools retained by the GSE. Principal and interest payments are paid to investors on the CRT notes they acquire, but if credit losses on the reference pool exceed a predefined threshold, then investors are responsible for absorbing the losses exceeding that level. 

The details of the current CAS offering, not yet officially announced by Fannie Mae, are revealed in a pre-sale ratings report issued by Kroll Bond Rating Agency (KBRA). The report indicates that the average remaining loan balance for the loans in the reference pool is $295,109, with a weighted average interest rate of 2.95% and an average original loan-to-value ratio of 73.7%. 

The states with the largest concentrations of mortgages in the loan pool are California, 21%; Florida, 7.1%; Texas, 6.5%; and New York, 4.5%. Rocket Mortgage originated 11.6% of the loan-pool balance while United Wholesale Mortgage was the second-largest originator, at 8.3%; followed by Wells Fargo, 6.1% and loanDepot, 4.3%, according to the KBRA report.

“When considering the average California percentage in KBRA-rated prime jumbo pools (approximately 45%-50%), the California concentration of this [current CAS] transaction is relatively low at 21%,” the KBRA report states. 

The KBRA report, however, did indicate that 41.5% of the 150,000-plus mortgages in the $44.4 billion reference pool received appraisal wavers, resulting in the bond-rating agency applying “a broad valuation haircut to such loans.” 

Appraisal-waiver offers are issued through Fannie Mae’s Desktop Underwriter platform and make use of the agency’s robust database of some 50 million appraisal reports, along with data from Fannie’s Collateral Underwriter platform.

“Fannie Mae allows lenders to underwrite certain loans without a traditional appraisal, subject to certain eligibility requirements,” the KBRA report notes. “…Loans with appraisal waivers have comprised an increasing percentage of agency loans, including those in CRT reference pools.

“It should be noted that while the acceptability of a property value or sales price based on the use of proprietary models and market data is assessed, it does so without Fannie Me Mae having performed a property review or having obtained a valuation of the property.” 

With the completion of its third CRT transaction this year, Fannie Mae will have brought 47 CAS deals to market, issued over $53 billion in notes since its initial offering in 2013, and transferred a portion of the credit risk to private investors on some $1.7 trillion in single-family mortgage loans, measured at the time of the transaction. 

Earlier this year, a Fannie executive said the agency expects to issue $15 billion in notes through CAS transactions in 2022. This latest deal brings the agency, after less than three months into the year, to nearly the $4 billion mark — or at slightly more than a quarter of its annual goal.

The initial Fannie CRT deal of 2022, CAS 2022-R01, involved a $1.5 billion note issued against a reference loan pool of 180,002 residential mortgages with an outstanding principle balance of $53.7 billion. CAS Series 2022-R02, the second offering this year, involved transferring loan-portfolio risk to private investors via a $1.2 billion note offering backed by a reference pool of 149,393 residential mortgage loans valued at $44.3 billion.

In the final CRT deal of 2021, CAS 2021-R03, Fannie Mae issued a $909 million note against a reference pool of 117,000 single-family mortgages valued at about $35 billion. The prior two deals in 2021 involved CRT notes with a combined value of nearly $2.2 billion. 

Prior to restarting CRT offerings in 2021, Fannie Mae had backed away from the CRT market for a time — with its prior transaction closing in March 2020.

In a related transaction, Fannie Mae earlier in March also completed its first credit insurance risk transfer (CIRT) deal of 2022 as part of its ongoing efforts to share mortgage risk with the private sector. The deal transferred up to $770.7 million of credit risk to a group of 22 private insurers and reinsurers. That credit risk is tied to a $26.1 billion reference pool of 87,600 single-family mortgages. 

As part of that deal, Fannie Mae retains the risk on the first 25 basis points of any loss on the loan pool. If that $65.3 million retention layer is tapped, then the 22 insurers and reinsurers will cover the next 295 basis point of loss, up to $770.7 million. The coverage is based on actual losses over a 12.5-year term. 

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