Fannie Mae is preparing its third offering of notes transferring the risk of default on mortgages that it insures.

Connecticut Avenue Securities, Series 2014-C02s will issue $1.6 billion of notes that are general senior unsecured obligations of Fannie Mae, but are subject to the credit and principal payment risk of a pool of residential mortgage loans held in various mortgage bonds guaranteed by Fannie Mae.

Fitch Ratings expects to assign a ‘BBB-‘ rating to a $555.58 million of class 1M-1 notes and a ‘BBB+’ rating to $174.2 million of class 2M notes.  

While the transaction structure simulates the behavior and credit risk of the mezzanine and subordinate securities issued by traditional mortgage backed securities, Fannie Mae will be responsible for making monthly payments of interest and principal to investors.

The notes will be issued as uncapped LIBOR-based floaters and carry a 10-year legal final maturity.

The latest deal is similar to Fannie Mae’s previous risk sharing transaction, according to Fitch: the only difference from the prior transaction is the addition of a separate loan group that consists of loans with LTVs greater than 80% and less than or equal to 97%.

The objective of the transaction is to transfer credit risk from Fannie Mae to private investors with respect to the $60.9 billion pool of mortgage loans held in previously issued MBS guaranteed by Fannie Mae.

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