The Connecticut Avenue Securities, series 2016-C07 (CAS 2016-C07), was rated as follows, all with the “Outlook Stable”:
- $310,146,000 class 2M-2B notes 'Bsf'
- $449,177,000 class 2M-2 exchangeable notes 'Bsf'
- $139,031,000 class 2M-2A notes 'BB+sf'
- $139,031,000 class 2M-2I exchangeable notional notes 'BB+sf'
- $139,031,000 class 2M-2R exchangeable notes 'BB+sf'
- $139,031,000 class 2M-2S exchangeable notes 'BB+sf'
- $139,031,000 class 2M-2T exchangeable notes 'BB+sf'
- $139,031,000 class 2M-2U exchangeable notes 'BB+sf'
- $192,504,000 class 2M-1 notes 'BBB-sf'
“This will be Fannie Mae's eighth actual loss risk transfer transaction in which losses borne by the noteholders will not be based on a fixed loss severity (LS) schedule,” says Fitch. “The notes in this transaction will experience losses realized at the time of liquidation or modification, which will include both lost principal and delinquent or reduced interest.”
Fitch reports that the 'BBB-sf' rating for the 2M-1 note reflects the 3.10 percent subordination provided by the 0.65 percent class 2M-2A note, the 1.45 percent class 2M-2B and the 1.00 percent 2B note, and their corresponding reference tranches.
The analysis says that these notes are general senior unsecured obligations of Fannie Mae (rated 'AAA'/Outlook Stable) subject to the credit and principal payment risk of a pool of certain residential mortgage loans held in various Fannie Mae-guaranteed MBS.
“The 2M-1, 2M-2A, 2M-2B, and 2B notes benefit from a 12.5-year legal final maturity. As a result, any collateral losses on the reference pool that occur beyond year 12.5 are borne by Fannie Mae and do not affect the transaction,” says the report. “Fitch accounted for the 12.5-year window in its default analysis and applied a reduction to its lifetime default expectations.”
Fitch adds that despite the fact that the transaction structure simulates the behavior and credit risk of traditional RMBS mezzanine and subordinate securities, Fannie Mae will be responsible for making monthly payments of interest and principal to investors.
“Because of the counterparty dependence on Fannie Mae, Fitch's expected rating on the 2M-1, 2M-2A and 2M-2B notes will be based on the lower of: the quality of the mortgage loan reference pool and credit enhancement (CE) available through subordination; and Fannie Mae's Issuer Default Rating,” says Fitch. “The notes will be issued as uncapped LIBOR-based floaters and will carry a 12.5-year legal final maturity.”