Fannie Mae prices first credit risk transfer deal since pandemic

Government-sponsored enterprise Fannie Mae, fulfilling a promise made last month, priced its first structured single-family credit risk transfer since the coronavirus arrived in the United States.

The $1.2 billion real estate mortgage investment conduit deal also is the first Connecticut Avenue Securities transaction to be indexed to the Secured Overnight Financing Rate, an alternative to Libor. It corresponds to $72.3 billion in average principal for an effective risk transfer percentage of 1.7%, according to a BTIG report research note issued Oct. 20.

The transaction’s pricing confirms Fannie’s return to the CAS program after an absence spurred by the treatment of the securities under a Trump administration capital rule. Although Freddie Mac continued its issuance of CRT, Fannie chose to discontinue its activity until a re-evaluation of the rule occurred under the Biden administration.

Fannie indicated the deal’s reception in the market was strong enough to tentatively plan to follow it up with another one next month.

“We are pleased with the execution of CAS 2021-R01, which was met with strong investor demand across all classes,” said Devang Doshi, senior vice president, single-family capital markets, at Fannie Mae, in a press release. “Subject to market conditions, we look forward to returning to market next month with CAS 2021-R02, a high LTV transaction.”

The Structured Finance Association welcomed Fannie’s return to the market.

“The return of this activity from Fannie Mae means that the GSE CRT programs collectively represent an attractive investment opportunity for committed capital and an important source of risk reduction at the enterprises,” said Michael Bright, the association’s CEO, in a press release.

The 1M-1, 1M-2 and 1B-1 classes within Fannie’s new CAS deal, Series 2021-R01, were priced at the following basis point spreads above one-month SOFR, with their expected structured finance ratings from Standard & Poor’s/DBRS Morningstar: 75, BBB+/BBB(high); 155,BBB-/BBB; and 310, B+/BB. The ratings indicate the first two classes have high-end investment-grade ratings. The third class has speculative grade ratings.

CAS 2021-R01 also contains one $300 million unrated tranche which will not be rated. This class, 1B-2, priced at a spread of 600 basis points above the one-month SOFR rate.