Fannie Mae Updates Credit Risk Transfer Program For REITs

WASHINGTON, DC–For years Fannie Mae and Freddie Mac have been expanding and tweaking their investment product lines to make them more attractive to a broader array of investors. Recently Fannie Mae made a change to its benchmark Connecticut Avenue Securities (CAS) structure so that REITs, mortgage REITs in particular, would find them appealing for their own portfolios.

Under a change that was first proposed last year Fannie Mae will be able to structure future CAS offerings as notes issued by trusts that qualify as Real Estate Mortgage Investment Conduits (REMICs). “In order to continue to promote the objective of creating a broad and liquid market for credit risk, we are exploring ways to expand the investor base, notably for REITs, which are a natural pool of capital for mortgage risk,” Fannie Mae wrote in its FAQ about the new structure.

This is how the enhancement will work: Fannie Mae will make a REMIC tax election on a majority of single-family loans that it acquires and guarantees. The mortgage loans will continue to flow directly from Fannie Mae to the MBS Trust and the MBS trust will continue to own whole mortgage loans. In addition, Fannie Mae’s Single-Family MBS Trust Agreement has been amended to incorporate these changes and its Single-Family MBS Prospectus updated to reflect this election.

It is expected that Freddie Mac’s Structured Agency Credit Risk securities will offer a similar accommodation. Last year when the change was first proposed, both of the GSEs said they were working on new structures for their respective investments.