The benchmark for U.S. mortgage credit
As the largest manager of residential mortgage credit, Fannie Mae sets the standard for managing credit risk throughout the life cycle of a mortgage – continuously innovating to reduce default risk and credit losses.
Through Connecticut Avenue Securities® (CAS), institutional investors can invest side-by-side with Fannie Mae in our geographically diverse credit book of business. The CAS program provides an opportunity to invest in a portion of the credit risk that Fannie Mae retains when we guarantee single-family mortgage-backed securities (MBS).
Developing a broad and deep market
Since our first CAS issuance in October 2013, Fannie Mae has built a robust market sector for mortgage credit. Our offering of industry-leading tools and capabilities have helped to build a broad and diverse investor base. To allow institutional investors to evaluate the CAS program, we provide:
- an unprecedented amount of performance information in our historical research dataset
- transparency into our innovative tools and processes
- a proprietary, unique tool (Data Dynamics®), free to investors, to analyze
- Fannie Mae's historical research data
- CAS deal profiles and performance
- monthly loan-level reference pool data for monitoring investment
Through CAS, we have developed the most liquid market for single-family mortgage credit risk.
A geographically diverse reference pool
The reference pools underlying CAS are large and highly diversified, offering broad exposure to the U.S. housing market. The loans in these pools are:
- Conventional 30-year fixed-rate mortgage loans recently securitized into Fannie Mae MBS
- Originated to meet Fannie Mae's rigorous underwriting and eligibility criteria
- Managed with Fannie Mae's innovative quality control process–we provide ongoing credit risk management oversight throughout the life of each loan
- Either loans with original LTV ratios between 60.01% and 80.00% (Group 1 tranches) or loans with original LTV ratios between 80.01% and 97.00% (Group 2 tranches)
The CAS REMIC, an innovative deal structure
In 2018, Fannie Mae introduced the industry's leading innovation in mortgage credit risk transfer, the CAS REMIC™, further broadening the investor base. CAS deal structures from 2018-R07 forward are known as CAS REMICs, and are issued by a bankruptcy remote trust. Transactions prior to CAS 2018-R07, known as the "C" series (e.g., CAS 2018-C06), are unguaranteed and unsecured debt securities of Fannie Mae. The "C" series is unlike standard Fannie Mae debt as CAS investors may bear losses if loans in the reference pools experience losses.
The CAS REMIC:
- Satisfies all REIT income and asset tests for tax purposes
- Removes tax withholding restrictions for non-U.S. investors in all tranches
- Helps insulate investors from potential future counterparty risk exposure to Fannie Mae
- Simplifies and aligns tax treatment of CAS with other mortgage related securities
The CAS REMIC retains key features of the CAS program to support consistency of the program, including:
- notes are par-priced, uncapped 1-month LIBOR floating rate notes
- principal and interest on the notes is paid by the trust to note holders on a monthly basis
- notes have a defined final maturity of either 10 or 12.5 years
- payment on the securities is based on the performance of a "reference pool" of loans that were recently securitized into Fannie Mae MBS
- CAS investors may bear losses if loans in the reference pools experience losses
The CAS REMIC deal structure is similar to a typical residential mortgage backed securitization:
- CAS notes utilize a senior/subordinate structure in which credit protection is provided by the more junior notes to the more senior notes in priority order
- as principal is repaid on the loans in the reference pool, a corresponding amount of principal is repaid to the noteholders
- if loans in the reference pool default and experience losses, the CAS REMIC notes also experience losses – losses are applied first to write down the most junior notes, then allocated to the remaining notes in reverse sequential order
Fannie Mae retains a vertical slice of each CAS REMIC transaction to ensure aligned interest with investors.
In April 2018, SIFMA's TBA Guideline Steering Committee confirmed via a vote that it has not identified any issues that would impair the TBA eligibility of MBS under this new structure.
As a result, Fannie Mae released an updated Single-Family MBS Prospectus, effective for fixed-rate and adjustable-rate mortgage single-family pools with issue dates on or after May 1, 2018. These pools are issued under our Amended and Restated 2016 Single-Family Master Trust Agreement.
Are you an institutional investor who wants to learn more about our CAS program? We would love to connect with you. Contact us here.