Fannie Mae stepped up to bat with a rated version of the risk share security first introduced to the market in July by Freddie Mac. Fitch Ratings assigned the deal ‘BBB-’.

Fannie will transfer credit risk on a $28 billion pool of mortgage loans currently held in previously issued MBS guaranteed by Fannie Mae, to private investors.

Fitch has assigned ‘BBB-’ ratings to the $337.5 million class M-1 notes of the deal called Connecticut Avenue Securities Series 2013-C01.  The notes have a 10-year final legal maturity.

The deal is structured with additional classes of notes that have not been rated by Fitch. The class A-H, M-1H, M-2H and B-H are reference tranches only and the risk is retained solely by Fannie Mae, said Fitch in the presale report.

The deal is similar in structure to Freddie Mac’s debut deal dubbed Freddie Mac Structured Credit Risk Debt Notes Series 2013-DN1, said Fitch. However Freddie Mac sold its notes without a rating.

“The transaction effectively mimics a credit-linked note structure with principal repayment of the notes subject to the performance of a reference pool of mortgage loans,” explained Fitch. “As loans become 180 day delinquent or other credit events occur, the outstanding principal balance of the debt notes will be reduced by a pre-defined, tiered loss severity percentage related to those credit events.”

Fannie Mae and Freddie Mac have been ordered by their regulator, the Federal Housing Finance Agency, to offload the credit risk involving single-family mortgages with at least $30 billion of unpaid principal balance in 2013.  


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