Fannie Mae Prices Third Capital Markets Risk Sharing Transaction

Latest Deal Expands Loan Collateral Diversity and is Largest Offering to Date

Callie Dosberg

202-752-3117

WASHINGTON, DC – Fannie Mae (FNMA/OTC) today announced that it priced its third credit risk sharing transaction under its Connecticut Avenue Securities (C-deals) series.  In this offering, Series 2014-C02, Fannie Mae has included reference loans with original loan-to-value ratios (LTV) of up to 97 percent.  Previous C-deal offerings included reference loans with up to 80 percent original LTV ratios. Series 2014-C02 is also the largest C-deal transaction to date.  The $1,600,066,000 note offering priced today and is scheduled to settle on May 28.

“We’re proud to bring a strong transaction with more varied product to market with this deal,” said Laurel Davis, vice president for credit risk transfer at Fannie Mae.  “As the market moves from a refinance market to a purchase money market, it is more common to see loans with higher LTVs.  Loans with LTVs over 80 have always been part of Fannie Mae’s business and adhere to our strong underwriting and credit standards.  We expect to keep coming to the market with ongoing, regular issuance under the Connecticut Avenue Securities program.”

C-deal notes are bonds issued by Fannie Mae.  The amount of periodic principal and ultimate principal paid by Fannie Mae is determined by the performance of a large and diverse reference pool.  The reference pool for the Series 2014-C02 transaction includes nearly 255,000 single-family mortgage loans with an outstanding unpaid principal balance of $60.8 billion.  This reference pool consists of a random selection of eligible loans acquired in the first quarter of 2013, part of Fannie Mae’s new book of business underwritten using strong credit standards and enhanced risk controls.  The loans included in this transaction are fixed-rate, generally 30-year term, fully amortizing mortgages and the reference pool is subdivided into two loan groups by original LTV.  Group one includes loans with original LTV ratios between 60.01 percent and 80.00 percent.  Group two includes loans with original LTV ratios between 80.01 percent and 97.00 percent.

Pricing for the 1M-1 tranche was one-month LIBOR plus a spread of 95 basis points.  Pricing for the 1M-2 tranche was one month LIBOR plus a spread of 260 basis points.  Pricing for the 2M-1 tranche was one-month LIBOR plus a spread of 95 basis points.  Pricing for the 2M-2 tranche was one month LIBOR plus a spread of 260 basis points.  More than 60 broadly-diversified investors participated in the offering, including asset managers, mutual funds, pension funds, hedge funds, insurance companies, banks, and REITs.  The 1M-1 tranche is expected to receive ratings of BBB-sf by Fitch Ratings and (P) BBB- (sf) by Standard & Poor’s Ratings Service.  The 2M-1 tranche is expected to receive ratings of BBB+sf by Fitch Ratings and (P) BB (sf) by Standard & Poor’s Ratings Service.  The 1M-2 tranche and 2M-2 tranche were not rated.  Fannie Mae retained the first loss and senior piece of the structure, as well as a vertical slice of the M1 and M2 tranches in both groups in order to align its interests with investors throughout the life of the deal.

Credit Suisse was the lead structuring manager and joint bookrunner on this transaction.  Morgan Stanley & Co. LLC was the co-lead manager and joint bookrunner. Bank of America Merrill Lynch, Barclays Capital Inc., JP Morgan Securities LLC., and Nomura Securities International, Inc. were co-managers, and Mischler Financial Group participated as a selling group member.

For more information on this transaction and Fannie Mae’s approach to credit risk transfer, visit https://www.fanniemae.com/portal/funding-the-market/credit-risk/index.html.