GSE Diminishes Credit Risk Through Transaction

In its continued efforts to aid in stabilizing the market, """"Fannie Mae"""":http://www.fanniemae.com/portal/index.html announced on Tuesday that it priced its second credit risk sharing transaction under the Connecticut Avenue Securities (C-deals) series. The series 2014-C01 transaction provides an additional avenue to manage the credit risk on the company's guaranty book of business, the GSE said in a statement. The $750 million note offering priced on Tuesday and is scheduled to settle on January 27, according to the GSE.

""""We've learned that the market has an appetite for consistency and we plan to respond by bringing regular C-deals to the market this year,"""" said Laurel Davis, VP for credit risk transfer at Fannie Mae.

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""""We are pleased to continue the momentum and strong investor interest of our inaugural transaction by reducing taxpayer risk and attracting additional private capital, while preserving an efficient TBA market,"""" she continued.

These transactions act as cushion for credit risk for the GSE. The amount of principal paid by Fannie Mae is determined by the performance of a large and diverse reference pool. The reference pool for the Series 2014-C01 transaction includes more than 122,000 single-family mortgage loans with an outstanding unpaid principal balance of $29.3 billion, according to the release by the GSE.

This reference pool consists of a random selection of eligible loans acquired in the fourth quarter of 2012, part of Fannie Mae's new book of business underwritten using strong credit standards and enhanced risk controls, according to the release. The loans included in this transaction are fixed-rate, generally 30-year term, fully amortizing mortgages with LTV ratios between 60 percent and 80 percent, according to the release.

Pricing for the M-1 tranche was one-month LIBOR plus a spread of 160 basis points, according to the GSE. Pricing for the M-2 tranche was one month LIBOR plus a spread of 440 basis points, according to the GSE. About 50 broadly-diversified investors participated in the offering, including asset managers, mutual funds, pension funds, hedge funds, insurance companies, banks, and REITs. """"Bank of America/Merrill Lynch"""":http://corp.bankofamerica.com and """"Barclays"""":http://group.barclays.com/home served as managers and joint bookrunners on this transaction.