Likely a part of Fannie Mae's effort to meet capital requirements, the government sponsored entity unloaded a slew of asset-backed securities from its books last week through $9 billion total in private placement re-REMIC deals reportedly consisting entirely of subprime mortgage collateral.

Fannie's move to repackage the triple-A rated bonds in a re-REMIC was likely spurred by its need to get the securities off its balance sheet, sources said.

"They [Fannie Mae] have been heavy purchasers of the triple-A private label securities out there, and this may be a way of getting some of that off the books, while still retaining a piece of the earnings, and not driving down prices with a big sale," said Jay Brinkman, vice president for economics and research at the Mortgage Bankers Association.

The deals, FNGT 2005-T2 and FASC AAA Trust 2005-2, managed by RBS Greenwich Capital, are expected to settle Friday.

Fannie issued three classes off its grantor trust. The IA1 tranche, worth $2 billion, has a one year weighted average life; the $337.3 million II-A2 tranche, with a three-year weighted average life and a $698.7 million IA3 tranche, with an weighted average life of 6.19 years, The tranches priced at one, 12, and 21 basis points over one-month Libor, respectively. Fannie will retain a $2 billion II-A2 class, sources said.

Off Greenwich's AAA Trust shelf, $2.8 billion one-year A1 paper priced at 10 basis points over Libor, while $698.7 million of 6.12-year A3 notes priced at 37 basis points over one-month Libor.

All five of the offered classes received triple-A ratings from Moody's Investors Service, Standard and Poor's and Dominon Bond Rating Service.

The setup is unique for a re-REMIC because it consists entirely of senior bonds, said Quincy Tang, a senior vice president at Dominion Bond Rating Service. Dominion rated the deal, despite rating roughly 10% of the underlying collateral at new issue. Typically, a re-REMIC will consist of older, subordinated classes repackaged in order to gain a higher rating. Collateral in the deal came from familiar names to the ABS market, including AmeriQuest Mortgage New Century Financial, Option One Financial, Wells Fargo and WMC Mortgage.

"If you are comfortable with the underlying risk of these pools, there is nothing to worry about," Tang said. "You are not paying out more than you are getting."

Fannie must meet higher capital requirements by the end of September. The GSE is scrambling to find extra cash. Among some of the things Fannie has done is halved its common dividend, issued $5 billion in preferred stock at 2004 yearend, and has been shrinking its portfolio at an 18% annual rate, Brinkman said. Fannie's total portfolio hovers around the $900 billion mark, he said. A Fannie Mae representative declined to comment on the deal.

Federal Reserve Chairman Alan Greenspan, a proponent of reduction in GSE portfolio size, said last week at the Chicago Federal Reserve Bank's Annual Banking Conference that the combined mortgage holdings of Fannie and Freddie Mac could disrupt swap market liquidity. As of March 31, Fannie's gross mortgage portfolio totaled $864.6 billion, including $455 billion of mortgage-backed securities.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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