New Fitch Ratings for Fannie Mae’s CAS Notes

Fannie Mae has received additional ratings for several Connecticut Avenue Securities (CAS) notes, part of an ongoing effort to improve transparency and liquidity at the GSE.

Fitch Ratings bestowed the new ratings Tuesday, a month after the company announced it would likely rate the CAS notes.

Fannie’s announcement Tuesday stated that the new credit ratings make CAS notes eligible for purchase in the secondary market and “are now likely to receive more favorable financing terms, further enhancing their liquidity. Eight types of Class M-2 notes dating from 2013 through 2015 were rated “BB+sf, outlook stable.”

Laurel Davis, vice president for credit risk transfer, Fannie Mae, said the new ratings “reflect the strong performance of the underlying collateral of our Connecticut Avenue Securities and the strength of Fannie Mae’s credit risk management processes.,” adding that Fannie is “committed to enhancing our offerings as we lead the effort of building a strong and transparent market for credit risk sharing.”

Grant Bailey, managing director, Fitch Ratings, said the ratings in CAS notes reflect agency’s confidence in the strength of the notes’ performance and “the structural features that reduce credit risk to investors over time.”

Since issuance, Fitch stated, the M-2 classes have had a steady increase in their credit enhancement percentage, as the reference pool has paid down and losses have been minimal.

“Based on its review of Fannie Mae's acquisition platform,” the company stated, “Fitch believes that Fannie Mae has a well-established and disciplined credit-granting process in place and views its lender approval and oversight processes for minimizing counterparty risk and ensuring sound loan quality acquisitions as positive.”

As of August 2, Fannie has brought 14 CAS deals to market, issued $18 billion in notes, and transferred a portion of the credit risk to private investors on single-family mortgage loans with an outstanding unpaid principal balance of approximately $621.5, the GSE announced. Fannie also has transferred a portion of the credit risk on approximately $741.8 billion in single-family mortgages through all of its risk transfer programs.

All of the new ratings are assigned to transactions with a legal final maturity of 10 years, Fitch stated.