Fannie Mae has announced the pricing of its first Connecticut Avenue Securities (CAS) REMIC transaction of the year, Series 2020-R01. The $1.03 billion note offering is designed to share credit risk on its single-family conventional guaranty book of business.
According to Fannie Mae, the CAS issuer strategy works to build program in a sustainable way to promote liquidity. Similiarly, the GSEs are looking to expand liquidity through the Uniform Mortgage-Backed Security (UMBS).
"As we enter the seventh year of the CAS program, we are pleased to see the growth, stability, and liquidity of this market supported by a deep and diverse investor base," said Laurel Davis, VP of Credit Risk Transfer, Fannie Mae. "Our single-family credit risk transfer programs recently crossed a significant milestone, transferring a portion of credit risk on over $2 trillion in underlying loans since 2013. Subject to market conditions, we plan to return to market in mid-February with a high-LTV CAS deal."
The reference pool for CAS Series 2020-R01 consists of approximately 105,000 single-family mortgage loans with an outstanding unpaid principal balance of approximately $29 billion. The reference pool includes one group of loans comprised of collateral with loan-to-value ratios of 60.01% to 80.00%, the majority of which were acquired from June through August 2019. Fannie Mae will retain a portion of the 1M-1, 1M-2, and 1B-1 tranches in order to align its interests with investors throughout the life of the deal, and will retain the full 1B-2H first loss tranche.
Earlier this month, Fannie Mae received upgraded designations for the 2019 filing year from the National Association of Insurance Commissioners (NAIC). Four CAS M-2 bonds were upgraded to an NAIC 1 designation and two M-2 bonds were upgraded to an NAIC 2 designation.
The CAS bonds which received upgraded NAIC Designations in the 2019 filing year are listed here. CAS REMIC transactions are issued out of a bankruptcy remote trust, rather than as direct debt of Fannie Mae.
Fannie Mae issued the first REMIC structure for Connecticut Avenue Securities in November 2018. Renee Schultz, SVP of Capital Markets at Fannie Mae, stated that it "was an important transaction for a number of different reasons."
"One, for us, it helped align the accounting treatment, the recognition of the loss and the benefit. Also, it opened up the investor base. "