Perspectives

Fannie Mae's Connecticut Avenue Securities™ Risk Transfer Program Reaches 2-Year Anniversary

Laurel DavisLast month marked the two-year anniversary of Fannie Mae's ground-breaking credit risk transfer program, Connecticut Avenue Securities, or CAS. We are pleased to celebrate this anniversary and marked this important milestone with a short video (see below) to highlight our accomplishments. Since its inception in 2013, we have established a new risk-transfer market and we are building a strong and growing investor base in the CAS program.

•   We have built a new sector in the market, selling over $12.4 billion in CAS securities to private investors to date, covering $438 billion in mortgage loans.

A large part of the CAS program’s market appeal is the sound and transparent credit performance of Fannie Mae's loans. We lead the industry in managing single-family credit risk via innovative practices and technology, creating tools that are unique to Fannie Mae that benefit investors in the CAS program. We believe that these industry-leading standards, risk management practices, and analytic tools attract investors to the CAS program.

•   We are changing the mortgage credit markets – setting the standard for increased transparency into the processes and tools that benefit CAS investors.

We recently brought our ninth CAS deal to the market, our first CAS deal allocating actual losses from the deal's reference pool to investors (versus a fixed severity schedule incorporated on previous deals). We will continue to use the actual loss framework for CAS deals going forward and provided enhanced disclosures to support this shift.

•   We are leading the market in providing robust research data and disclosures – helping investors better monitor their investments in the program.

Through our latest CAS deal, and other forms of risk transfer vehicles such as our Credit Insurance Risk Transfer (CIRT) program with reinsurers, Fannie Mae has changed how it operates. In the past, we acquired credit risk and held it through the life of the asset. Today, we are moving some of that risk away from taxpayers to private capital.

•   Through all of our risk sharing programs, by the end of 2015, Fannie Mae anticipates it will have transferred a portion of the credit risk on approximately half a trillion dollars in single-family mortgages.

Our credit risk-sharing transactions are structured so that if the covered loans experienced the same stress scenario as in the most recent housing crisis, Fannie Mae's projected loss exposure would be limited to a relatively small piece of credit risk retained by the company.

Our efforts to transfer credit risk away from Fannie Mae significantly reduce taxpayers' exposure to risk, give investors an avenue to gain exposure to the U.S. housing market, and help ensure essential funding for homebuyers. We look forward to another strong year for our credit risk transfer programs in 2016.

This commentary includes expectations regarding the company’s credit risk transfer transactions. These expectations are forward-looking statements based on the company's current assumptions regarding numerous factors. The company’s actual results and future expectations may differ materially from its current expectations due to a variety of factors, including those discussed in "Executive Summary," "Forward-Looking Statements" and "Risk Factors" in its annual report on Form 10-K for the year ended December 31, 2014 and its quarterly report on Form 10-Q for the quarter ended September 30, 2015.

Laurel Davis
Vice President
Credit Risk Transfer

November 18, 2015