Fannie Mae signs first credit risk transfer agreement since pandemic

The government sponsored company Fannie Mae, accomplishing a promise made last month, assessed its first structured single-family credit risk transfer since the arrival of the coronavirus in the United States.

The $ 1.2 billion real estate mortgage investment conduit is also the first Connecticut Avenue Securities transaction to be indexed to the Secured Overnight Financing Rate, an alternative to Libor. That works out to $ 72.3 billion in average capital for an effective risk transfer percentage of 1.7%, according to a research note from the BTIG report released on October 20.

The listing of the transaction confirms Fannie’s return to the CAS program after an absence motivated by the processing of securities as part of a Trump administration capital rule. Although Freddie Mac continued his CRT show, Fannie chose to go out of business until a revaluation of the rule took place under the Biden administration.

Fannie said the reception of the deal in the market was strong enough to tentatively consider following it up with another next month.

“We are pleased with the execution of CAS 2021-R01, which was met by strong demand from investors across all categories,” said Devang Doshi, senior vice president, single-family home capital markets, at Fannie Mae , in a press release. “Subject to market conditions, we look forward to returning to the market next month with CAS 2021-R02, a high LTV transaction. “

The Structured Finance Association hailed Fannie’s return to the market.

“The return of this activity from Fannie Mae means that the GSE CRT programs collectively represent an attractive investment opportunity for committed capital and an important source of risk reduction in businesses,” said Michael Bright, CEO of the association. , in a press release.

Classes 1M-1, 1M-2 and 1B-1 within Fannie’s new CAS agreement, Series 2021-R01, were valued at the following basis point spreads above the one-month SOFR, along with their funding ratings structured expected from Standard & Poor’s / DBRS Morning Star: 75, BBB + / BBB (high); 155, BBB- / BBB; and 310, B + / BB. The ratings indicate that the first two classes have high-end investment ratings. The third class has speculative odds.

CAS 2021-R01 also contains an unrated $ 300 million tranche that will not be rated. This class, 1B-2, was listed at a spread of 600 basis points above the SOFR one-month rate.

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