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Fannie Mae Prices First Credit Risk Sharing Transaction Under Actual Loss Framework

fanniemaeFannie Mae announced on Wednesday the pricing of the latest risk sharing transaction under the Connecticut Avenue Securities (CAS) Series at $1.45 billion. The latest transaction is Fannie Mae’s ninth under the CAS Series and first CAS transaction structured for an actual loss framework.

The standard for the CAS program going forward will be transactions structured using an actual loss framework, according to Fannie Mae. This transaction, CAS Series 2015-C04, is scheduled to settle on October 27.

“The move to an actual loss structure for CAS places even greater importance on how Fannie Mae manages credit risk, as investors now directly benefit from our comprehensive credit risk management approach,” said Laurel Davis, VP for credit risk transfer at Fannie Mae. “Because we are actively involved from pre-loan delivery through property disposition, investors have greater confidence in the loans in the CAS reference pools and their opportunity to invest in them. The fact that we are setting strong standards and managing the credit risk of loans throughout the lifecycle has helped investors become comfortable and re-enter the residential credit market. We look forward to another strong year for the CAS program in 2016.”

Fannie Mae has completed nine CAS transactions since the program began in October 2013. With those nine transactions, Fannie Mae has issued $12.44 billion in notes and transferred a portion of the credit risk to private investors on single-family loans with $437.55 billion in outstanding unpaid principal balance.

The CAS series, the Credit Insurance Risk Transfer (CIRT) reinsurance program, and other forms of risk transfer help Fannie Mae achieve its goal of increasing the role of private capital in the mortgage market and reducing taxpayer risk. By the end of 2015, Fannie Mae estimates that through all of its risk transfer programs, it will have transferred a portion of credit risk on single-family mortgage loans for approximately half a trillion dollars in UPB.

"The fact that we are setting strong standards and managing the credit risk of loans throughout the lifecycle has helped investors become comfortable and re-enter the residential credit market."

—Laurel Davis

Prior to CAS Series 2015-C04, CAS transactions have operated on a fixed severity schedule in calculating write-downs. Credit events typically occurred when reference pool loans become 180 days delinquent. Under the actual loss framework, any losses are passed through based on the realized losses of the loans after the final disposition. With the move to the actual loss framework for the CAS series, Fannie Mae has enhanced CAS disclosure data for investors and made historical data available to support the transition. The enhanced monthly disclosures will help investors monitor the ongoing performance of their investments in CAS securities, according to Fannie Mae.

A diversified group of new and existing investors participated in the CAS Series 2015-C04 transaction. The reference pool for CAS Series 2015-C04 contains more than 200,000 single-family mortgage loans with an aggregate UPB of approximately $45 million. The loans in the reference pool were acquired by Fannie Mae from September through November 2014 and it is part of the Enterprise’s new book of business using strong credit standards and enhanced risk controls.

Click here for more information on the CAS Series 2015-C04 transaction.

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.
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