Investments

Fannie MaeÕ latest risk-sharing deal prices wide

Bond backed by $53.8 billion in unpaid principal balance

Fannie Mae announced that it priced its fourth, and final, risk-sharing bond deal of the year under its Connecticut Avenue Securities label, Connecticut Avenue Securities 2014-C04, which carried a total unpaid principal balance of $53.8 billion.

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.

That is wide compared to Fannie’s last Connecticut Avenue offering.

Pricing for that deal was one-month LIBOR plus a spread of 120 basis points for the 1M-1 tranche. Pricing for the 1M-2 tranche was one month LIBOR plus a spread of 300 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 290 basis points.

Fannie’s latest Connecticut Avenue deal contained two pools of mortgages.

Group 1 contains 154,842 mortgages with original loan-to-value ratios greater than 60% and less than or equal to 80%. Group 1, which carries a balance of $35.8 billion, also carries a weighted average FICO score of 757, a WA original combined LTV of 76.4% and a WA debt-to-income ratio of 33.2%. The average loan balance of group 1 is $231,502.

Group 2 has 80,662 mortgages with original LTV greater than 80% and lower than or equal to 97%. Group 1 carries a balance of $18 billion and a weighted average FICO score of 753. Group 2 also carries a WA original combined LTV of 92.2% and a WA debt-to-income ratio of 34%. The average loan balance of group 1 is $223,494.

The reference pool consists of eligible loans acquired by Fannie in July and August of 2013. The loans were part of Fannie Mae’s new book of business underwritten using strong credit standards and enhanced risk controls, Fannie said.

In the risk-sharing deal, Fannie 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, Fannie said.

Laurel Davis, vice president for credit risk transfer at Fannie Mae, said that Fannie plans to continue offering risk-sharing deals in 2015.

“In our first year of offering Connecticut Avenue Securities transactions there has been a steady interest in these deals as investors continue to demonstrate an appetite for these opportunities and we see new investors participate in each deal,” Davis said.

"We have been actively working to generate additional new interest and expand the investor base and liquidity of the program. We plan to continue a regular program of benchmark issuance, and in 2015 we anticipate that we will be in the market on a quarterly basis, subject to market conditions.”

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