Connecticut Avenue Securities (CAS)

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:

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:

Connecticut Avenue Securities Sample 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%

Learn more

Are you an institutional investor who wants to learn more about our CAS program? We would love to meet with you. Contact us here.