Fannie Mae to Issue $1.5B Risk Transfer RMBS

Mortgage & Real Estate









Fannie Mae’s first risk-share transaction of the year is for $1.5 billion, according to a Fitch Ratings presale.

Called Connecticut Avenue Securities 2015-C01, the deal is Fannie’s sixth risk transfer transaction.

Similar to prior deals of this type, two separate loan groups will be included. The offered notes are Fannie Mae’s senior unsecured obligations that are linked to the credit performance of two reference portfolios of residential mortgages held in various Fannie-guaranteed MBS.

JPMorgan Securities is the lead manager.

The offered notes have a 10-year legal final maturity. Compared with CAS 2014-C03, Fannie Mae’s previous transaction, the pool includes an increased share of newly originated, purchase loans, according to the Fitch presale.

Group one of the issuer’s current transaction includes 63% of purchase loans and group two includes 89% of purchase loans. CAS 2014-C03, issued in December 2014, included 39% of purchase loans in the pool backing the group one securities and 71% of purchase loans in the pool backing group two securities.

The biggest difference between a purchase loan and a refinance loan is that in the former the customer generally does not have to pay closing costs and settlement charges for the refinance out of their pocket — the costs are included in the loan amount, which leads to a lower probability of default.

However, the loans also typically have higher loan-to-value and lower FICOs. As a result, Fitch said the weighted average FICO has fallen while weighted average loan-to-value has risen in both groups.

For group one the weighted average FICO is 753 and the weighted average LTV is 76.9% and group two has weighted average FICO of 749 and weighted average LTV of 92.65%. By comparison group one of Fannie Mae’s CAS 2015-C03 transaction has a weighted average FICO of 761 and a weighted average LTV of 75%; group two has a weighted average FICO of 754 and loans had a weighted average LTV of 92%.

The objective of the transaction is to transfer credit risk from Fannie Mae to private investors with respect to the $50.2 billion pool of mortgage loans held in previously issued MBS guaranteed by Fannie Mae. The transaction effectively mimics a credit-linked note structure with the principal repayment of the notes subject to the performance of a reference pool of mortgage loans.

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