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. Specifically, 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).
A maturing market
Since our first CAS issuance in October 2013, Fannie Mae has built a robust market sector for mortgage credit. Programmatic issuance and an 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 unique tool to analyze Fannie Mae’s historical research data as well as CAS deal profiles and performance
- monthly loan-level reference pool data for monitoring your investment
Through CAS, we have developed a liquid market for single-family mortgage credit risk.
A simple deal structure
CAS deal structures are unguaranteed and unsecured debt securities issued by Fannie Mae:
- notes are par-priced, uncapped 1-month LIBOR floating rate notes
- principal and interest on the notes is paid by Fannie Mae to note holders on a monthly basis
- notes have a defined final maturity of either 10 or 12.5 years
CAS securities are unlike standard Fannie Mae debt:
- 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
CAS deal structures are 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 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 transaction to ensure aligned interest with investors.
Below is a structural overview of a sample CAS transaction:
A geographically diverse reference pool
The reference pools consist of conventional 30-year fixed-rate mortgage loans recently securitized into Fannie Mae MBS:
- the reference pools are large and highly diversified, offering broad exposure to the US housing market
- the reference pools are composed of loans that are originated to meet Fannie Mae’s rigorous underwriting and eligibility criteria
- Fannie Mae's innovative quality control process applies to all loans included in each reference pool – Fannie Mae provides ongoing credit risk management oversight throughout the life of each loan
- reference pools for each transaction are divided into two loan groups based on original loan-to-value (LTV) ratios – each reference pool will generally include loans with original LTV ratios between 60.01% and 80.00% or loans with original LTV ratios between 80.01% and 97.00%
Are you an institutional investor who wants to learn more about our CAS program? We would love to meet with you. Contact us here.