Connecticut Avenue Securities (CAS) is the benchmark for U.S. mortgage credit.
of unpaid principal balance of single family mortgage loans is partially covered through CAS transactions, measured at the time of the transactions, as of Q2 2020.
As the largest manager of residential mortgage credit, Fannie Mae sets the standard for managing credit risk throughout the life cycle of a mortgage – continuously innovating to reduce default risk and credit losses.
Through Connecticut Avenue Securities® (CAS), institutional investors can invest side-by-side with Fannie Mae in our geographically diverse credit book of business. The CAS program provides an opportunity to invest in a portion of the credit risk that Fannie Mae retains when we guarantee single-family mortgage-backed securities (MBS).
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A broad and deep market
Since our first CAS issuance in 2013, Fannie Mae has developed the most liquid market for single-family mortgage credit risk. Our offering of industry-leading tools and capabilities have helped to build a broad and diverse investor base. To allow institutional investors to evaluate the program, we provide:
- A vast amount of performance information in our historical research dataset
- Transparency into our innovative tools and processes
- a proprietary tool, Data Dynamics®, free to investors, to analyze
- Fannie Mae's historical research data
- CAS deal profiles and performance
- Monthly loan-level reference pool data
Geographically diverse pool
Underlying reference pools are large and highly diversified, offering broad exposure to the U.S. housing market. Loans are:
- Conventional 30-year fixed-rate mortgage loans recently securitized into Fannie Mae MBS
- Originated to meet Fannie Mae's rigorous underwriting and eligibility criteria
- Managed with our innovative quality control process – we provide ongoing credit risk management oversight throughout the life of each loan
The CAS REMIC
In 2018, Fannie Mae introduced the industry's award-winning innovation in mortgage credit risk transfer, the CAS REMIC®, further broadening the investor base. CAS deals from 2018-R07 forward are known as CAS REMICs, and are issued by a bankruptcy remote trust. Transactions prior to CAS 2018-R07, known as the "C" series (e.g., CAS 2018-C06), are unguaranteed and unsecured debt securities of Fannie Mae. The "C" series is unlike standard Fannie Mae debt in that CAS investors may bear losses if loans in the reference pools experience losses.
The CAS REMIC offers the following benefits:
- The CAS REMIC retains key features of the CAS program to support consistency.
- The CAS REMIC structure is similar to a typical residential mortgage-backed securitization.
- For more details, view the investor presentation.
Fannie Mae retains a vertical slice of each CAS REMIC transaction to ensure aligned interest with investors.
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In April 2018, SIFMA's TBA Guideline Steering Committee confirmed via a vote that it has not identified any issues that would impair the TBA eligibility of MBS under this new structure.
As a result, Fannie Mae released an updated Single-Family MBS Prospectus, effective for fixed-rate and adjustable-rate mortgage single-family pools with issue dates on or after May 1, 2018. These pools are issued under our Amended and Restated 2016 Single-Family Master Trust Agreement.
Seasoned loan transactions
As part of our ongoing capital management efforts, Fannie Mae began taking credit risk transfer actions on its existing guaranty book.
Refi Plus/HARP Overview:
- Fannie Mae's Refi Plus program ran from April 2009 to December 2018 and was designed to enable borrowers whose loans were already owned by Fannie Mae to efficiently refinance into improved loan terms such as a lower rate, a shorter term, or a more stable product
- Home Affordable Refinance Program (HARP) loans are the subset of Refi Plus loans that had LTVs greater than 80 percent. Borrowers that took advantage of the HARP program demonstrated continued ability and willingness to make their mortgage payments but were unable to refinance due to low or negative equity
- Relative to standard refinance products, the primary benefits of Refi Plus/HARP were:
- lower loan delivery fees charged by the GSEs to the lenders (aka, "Loan Level Price Adjustments", or LLPAs), that enabled participating lenders to pass-through those savings to borrowers,
- certain underwriting flexibilities, including the ability to exceed standard refinance LTV limits (HARP), and
- no requirement for new or additional mortgage insurance (MI) even if the refinanced loan amount exceeded 80% of the updated property value, which further reduced borrower costs related to the purchase of MI (HARP)
- Fannie Mae introduced its first seasoned CAS credit linked note (CLN) deal in November 2019, CAS 2019-HRP1
- Learn more through Fannie Mae's Refi Plus and HARP program commentary
Seasoned B-Tranche Overview:
- The Seasoned B-Tranche deals transfer risk on retained B-pieces from previous CAS deals
- The securities offered reflect the collateral characteristics, class sizing, waterfall, and triggers of each underlying reference pool
- Cash flows continue to be allocated pro rata across the original sold and original retained portions of the underlying B classes for each legacy CAS transaction
- Fannie Mae's inaugural Seasoned B-Tranche deal was CAS 2020-SBT1, which transfers a portion of risk previously retained by Fannie Mae on eleven B classes from eight underlying CAS deals issued in late 2015 through 2016
Refer to our 2020 Issuance calendar for approximate timing on seasoned loan transactions.
Are you an institutional investor who wants to learn more about our CAS program? We would love to connect with you. Contact us here.