Fannie Mae's latest offering of Connecticut Avenue Securities, its last of the year, is the first to offer exposure to actual losses on residential mortgages that it insures.

CAS offerings are senior unsecured obligations of Fannie Mae but are subject to the credit risk of a pool of loans held in various mortgage-backed securities insured by the government-sponsored enterprise — in this case a $45 billion pool. The previous eight deals all calculated investor losses after loans became 180 days delinquent, based on an estimate of losses they might eventually incur.

By comparison, investors in CAS Series 2015-C04 transaction will be subject to losses experienced when the property securing a defaulted loan is sold, which could take considerably longer.

Fannie is following in the footsteps of rival Freddie Mac, which began issuing risk sharing securities with exposure to actual mortgage losses in April.

As in prior CAS transactions, the reference pools includes two subsets of loans, those representing between 60% and 80% of a property's value, and another that consists of loans representing between 81% and 97% of a property's value.

CAS 2015-CO4 will issue two tranches of notes linked to the credit performance of the first loan group and two linked to the performance of the second loan group.

Fitch expects to assign a BBB- rating the senior, $242.5 million 1M-1 tranche linked to the first loan group and a BBB- rating to the senior, $155.3 million 2M-1 tranche linked to the second loan group.

The final maturity of the notes is 12 years; by comparison, prior CAS offerings have maturities of 10 years. This means that any credit events on the reference pool that occur beyond year 12.5 are borne by Fannie Mae and do not affect the transaction.

In addition, if a loan becomes delinquent or defaults prior to maturity but losses are realized after the final maturity, note holders will not be affected. In its presale report, Fitch noted that this feature more closely aligns the risk of loss to that of the 10-year, CAS deals where losses were passed through when loans became 180 days delinquent with no consideration for liquidation timelines.

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