Fannie Mae rolls out its third CRT offering of 2022

The agency is set to unveil its third deal this year through its CAS credit risk transfer vehicle. The March offering, Series CAS 2022-R03, involves transferring some of the risk from the agency’s loan portfolio through a $1.24 billion note offering backed by a pool of benchmark loans of 150,395 mostly single-family mortgages valued at $44.4 billion.

Private investors, through a Credit Risk Transfer (CRT) transaction, participate with the Government Sponsored Enterprise (GSE) Fannie Mae in sharing some of the mortgage credit risk in the pools of reference loans retained by the GSE. Principal and interest payments are made to investors on the CRT notes they acquire, but if credit losses on the reference pool exceed a predefined threshold, investors are responsible for absorbing losses above that level. .

Details of the current CAS offering, not yet officially announced by Fannie Mae, are revealed in a pre-sale valuation report published by Kroll bond rating agency (KBRA). The report indicates that the average remaining loan balance for loans in the peer group is $295,109, with a weighted average interest rate of 2.95% and an average original loan-to-value ratio of 73.7%.

The states with the largest concentrations of mortgages in the loan pool are California, 21%; Florida, 7.1%; Texas, 6.5%; and New York, 4.5%. Rocket Mortgage accounted for 11.6% of the loan pool balance, while United Wholesale Mortgage was the second-largest customer, with 8.3%; followed by Wells Fargo6.1% and loanDeposit4.3%, according to the KBRA report.

“When you consider California’s average percentage of KBRA-rated blue chip jumbo pools (about 45% to 50%), California’s concentration of this [current CAS] transaction is relatively low at 21%,” the KBRA report said.

The KBRA report, however, said 41.5% of more than 150,000 mortgages in the $44.4 billion benchmark pool had received rating hesitations, leading the bond rating agency to apply “a large valuation discount to these loans”.

Valuation waiver offers are issued through Fannie Mae’s Desktop Underwriter platform and use the agency’s robust database of some 50 million valuation reports, as well as data from the Collateral platform. Fannie’s underwriter.

“Fannie Mae allows lenders to underwrite certain loans without a traditional appraisal, subject to certain eligibility conditions,” the KBRA report notes. “…Assessment waiver loans have accounted for a growing percentage of agency loans, including those in CRT benchmark pools.

“It should be noted that if the acceptability of a value or sale price based on the use of proprietary models and market data is assessed, it does so without Fannie Me Mae having conducted a review of the property or obtained an appraisal of the property. ”

With the completion of its third CRT transaction this year, Fannie Mae will have brought 47 CAS transactions to market, issued more than $53 billion of notes since its initial offering in 2013, and transferred some credit risk to private investors on some $1.7 trillion. in single-family mortgages, measured at the time of the transaction.

Earlier this year, a Fannie executive said the agency plans to issue $15 billion worth of tickets through CAS transactions in 2022. This latest deal brings the agency, after less than three months into the year, to nearly $4 billion – or just over a quarter of its annual target.

Fannie CRT’s original 2022 agreement, CAS 2022-R01, involved a $1.5 billion note issued on a benchmark loan pool of 180,002 residential mortgages with an outstanding principle balance of $53.7 billion. of dollars. Series CAS 2022-R02, the second offering this year, involved transferring loan portfolio risk to private investors through a $1.2 billion note offering backed by a benchmark pool of 149,393 residential mortgages. valued at $44.3 billion.

In the 2021 CRT Final Agreement, CAS 2021-R03, Fannie Mae issued a $909 million note against a benchmark pool of 117,000 single-family mortgages valued at approximately $35 billion. The previous two transactions in 2021 involved CRT tickets with a combined value of nearly $2.2 billion.

Prior to restarting CRT offerings in 2021, Fannie Mae had been away from the CRT market for some time – with its previous transaction closing in March 2020.

In a related transaction, Fannie Mae also entered into its first Credit Insurance Risk Transfer Agreement (CIRT) of 2022 earlier in March as part of its ongoing efforts to share mortgage risk with the private sector. The agreement transferred up to $770.7 million of credit risk to a group of 22 private insurers and reinsurers. This credit risk is tied to a $26.1 billion benchmark pool of 87,600 single-family mortgages.

Under this agreement, Fannie Mae retains risk on the first 25 basis points of any losses on the loan pool. If this $65.3 million retention layer is tapped, the 22 insurers and reinsurers will cover the next 295 basis points of loss, up to $770.7 million. Coverage is based on actual losses over a 12.5 year period.

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