Fannie Mae opened 2022 with its 45th credit-risk transfer (CRT) deal through its Connecticut Avenue Securities (CAS) real estate mortgage investment conduit, or REMIC, bringing the collective value of notes issued through the conduit to nearly $52 billion since the first offering in 2013.
The 45 CAS deals involved credit-risk transfer (CRT) notes issued to private investors against reference loan pools of single-family mortgages valued collectively as of the time of the transactions at just under $1.7 trillion. The initial deal of 2022 is the start of what is expected to be a busy year For Fannie Mae on the CRT front.
“In 2022, we look forward to bringing [to market] approximately $15 billion in our on-the-run CAS REMIC transactions, subject to market conditions and other factors,” said Devang Doshi, senior vice president of single-family capital markets at Fannie Mae.
Through a CRT transaction, private investors participate with government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac in sharing a portion of the mortgage credit risk in the reference loan pools retained by the GSEs. Investors receive principal and interest payments on the CRT notes they purchase, but if credit losses exceed a predefined threshold per the security issued, then investors are responsible for absorbing the losses exceeding that mark.
“When they do a credit-risk transfer transaction, it’s taking risk from that huge bucket [the reference loan pool] and selling off most of the credit-risk pieces,” said Roelof Slump, managing director of U.S. RMBS at Fitch Ratings.
The initial CRT deal of 2022, CAS 2022-R01, involves a $1.5 billion note issued against a reference loan pool of 180,002 residential mortgages with an outstanding principle balance of $53.7 billion. In the final CRT deal of 2021, CAS 2021-R03, Fannie Mae issued a $909 million note against a reference pool of 117,000 single-family mortgages valued at about $35 billion.
The prior two deals in 2021 involved CRT notes with a combined value of nearly $2.2 billion.
CAS Series 2021-R02, was issued in November and involved transferring loan-portfolio risk to private investors via a $984 million note offering backed by a reference pool of some 125,000 single-family mortgage loans valued at $35 billion. In October, the agency made a $1.2 billion CRT note offering, CAS Series 2021-R01, backed by a reference pool of 246,836 single-family mortgage valued at $72 billion.
Prior to restarting CRT offerings last year, Fannie Mae had backed away from the CRT market for a time — with its prior transaction closing in March 2020. Fannie and Freddie’s efforts on the CRT front were bolstered recently by pending changes to their capital-reserve rules that are being advanced by the Federal Housing Finance Agency (FHFA), which oversees the GSEs.
Pre-sale reports prepared by Kroll Bond Rating Agency on Fannie’s latest two deals include a note caution for at least one facet of the agency’s CRT transactions. The reports point out that appraisal waivers were issued for about 44% of the reference pools in each transaction.
“Loans with appraisal waivers have comprised an increasing percentage of agency loans, including those in CRT reference pools,” the KBRA notes in the presale reports for both the CAS 2021-R03 and CAS 2022-R01 deals. “It should be noted that while the acceptability of a property value or sales price based on the use of proprietary models and market data is assessed, it does so without Fannie Mae having performed a property review or having obtained a valuation of the property.
“As a result, KBRA applied a broad valuation haircut to such loans.”
The KBRA reports also indicate that the reference-pool loans in both CRT deals have broad geographic diversity, compared with typical non-agency deals, which helps to insulate the mortgage pools from regional economic shocks. In addition, the borrowers involved in each deal have solid credit scores — in the range of 760 on average — and an average debit-to-income ratio of 33.7%, which the KBRA reports state is “consistent with prime-quality underwriting.”
On another front, the other government-sponsored enterprise giant Freddie Mac, recently announced that its single-family credit risk transfer (CRT) program is projecting note volume of at least $25 billion in 2022.
Its CRT program was founded with Freddie Mac’s issuance of the first Structured Agency Credit Risk (STACR) notes in July 2013. In November 2013, its Agency Credit Insurance Structure(ACIS) program was introduced.
Freddie Mac issued more than $18 billion in CRT notes across 10 STACR and 11 ACIS deals in 2021, according to the agency. Some 50% of the Freddie’s single-family mortgage portfolio, or more than $2.5 trillion in mortgages, is covered by credit enhancements, according to an agency press release.
“Freddie Mac … plans to optimize our CRT offerings in 2022,” said Mike Reynolds, vice president of single-family CRT at Freddie Mac. “We expect a record year for STACR and ACIS issuance.”
