New York, October 28, 2016 -- Moody's Investors Service has upgraded the ratings of 2 tranches from
Connecticut Avenue Securities, Series 2014-C04, a securitization
designed to provide credit protection to Fannie Mae against the performance
of approximately $40 billion reference pool of prime first-lien
conforming mortgages. All of the Notes in the transaction are direct,
unsecured obligations of Fannie Mae and as such investors are exposed
to the credit risk of Fannie Mae (currently Aaa Stable).
The complete rating action is as follows:
Issuer: Connecticut Avenue Securities, Series 2014-C04
$340.5M Cl. 1M-1 Certificate, Upgraded
to Aa3 (sf); previously on Jun 30, 2016 Upgraded to A1 (sf)
$205M Cl. 2M-1 Certificate, Upgraded to Aa1
(sf); previously on Jun 30, 2016 Upgraded to A2 (sf)
RATINGS RATIONALE
The upgrades are primarily due to an increase in credit enhancement supporting
the affected subordinate bonds. The bonds have benefited from sustained
prepayment rates on their respective underlying pools and better than
expected performance. The September 2016 remittance data shows
a three month average conditional prepayment rate (CPR) of 15.85%
for Group 1 and 20.22% for Group 2. The percentage
of loans that are 60-plus days delinquent has been very low,
at 9 bps of the original balance for Group 1 and 14 bps for Group 2 as
of the September 2016 remittance report. Additionally, the
rate of credit events (which are defined as mortgage loans in the reference
pool that either are 180 days or more delinquent or that have been subject
to an involuntary disposition) is approximately 8 bps of the original
pool balance for Group 1 and 16 bps for Group 2. Classes 1M-1
and 2M-1, as senior subordinate classes, also benefit
from the sequential allocation of payments among the subordinate bonds
which explains the fast pay-down of these top mezzanine bonds.
As a result, the credit enhancement available to class 1M-1
increased to 2.65% in September 2016 from 2.00%
at issuance and credit enhancement available to class 2M-1 has
increased to 3.49% in September 2016 from 2.55%
at issuance while the tranche factors of these classes declined to 29.68%
and 18.36% respectively.
Moody's updated Group 1 base-case and Aaa-stress loss expectations
are 0.20% and 5.80%, respectively,
which incorporate our base-case and Aaa rate of credit events of
1.50% and 15.75%, respectively,
and the application of the transaction's predetermined loss severity
schedule. Moody's updated Group 2 base-case and Aaa-stress
loss expectation are 0.35% and 5.75%,
respectively, which incorporate our base-case and Aaa-stress
rate of credit events of 2.25% and 24.00%,
respectively, and the application of the transaction's predetermined
loss severity schedule.
Unlike a typical RMBS transaction, note holders in this transaction
are not entitled to receive any cash from the mortgage loans in the reference
pools. Instead, the timing and amount of principal and interest
that Fannie Mae is obligated to pay on the Notes is linked to the performance
of the mortgage loans in the reference pool. In addition,
CAS 2014-C04's note write-downs are determined by
pre-set tiered severity schedules. Similar to other fixed
severity CAS securitizations, CAS 2014-C04 has a legal final
maturity of 10 years.
The principal methodology used in these ratings was "Moody's Approach
to Rating US Prime RMBS" published in February 2015. Please see
the Rating Methodologies page on www.moodys.com for a copy
of this methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
Ratings in the US RMBS sector remain exposed to the high level of macroeconomic
uncertainty, and in particular the unemployment rate. The
unemployment rate fell to 5.0% in September 2016 from 5.1%
in September 2015. Moody's forecasts an unemployment central range
of 4.5% to 5.5% for the 2016 year.
Deviations from this central scenario could lead to rating actions in
the sector.
House prices are another key driver of US RMBS performance. Moody's
expects house prices to continue to rise in 2016. Lower increases
than Moody's expects or decreases could lead to negative rating actions
Finally, performance of RMBS continues to remain highly dependent
on servicer procedures. Any change resulting from servicing transfers
or other policy or regulatory change can impact the performance of these
transactions.
A list of these actions including CUSIP identifiers may be found at:
Excel: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF442294
A list of updated estimated pool losses is being posted on an ongoing
basis for the duration of this review period and may be found at:
Excel: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF243269
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
The analysis relies on an assessment of collateral characteristics to
determine the collateral loss distribution, that is, the function
that correlates to an assumption about the likelihood of occurrence to
each level of possible losses in the collateral. As a second step,
Moody's evaluates each possible collateral loss scenario using a
model that replicates the relevant structural features to derive payments
and therefore the ultimate potential losses for each rated instrument.
The loss a rated instrument incurs in each collateral loss scenario,
weighted by assumptions about the likelihood of events in that scenario
occurring, results in the expected loss of the rated instrument.
In rating this transaction, Moody's used a cash flow model
to model cash flow stress scenarios to determine the extent to which investors
would receive timely payments of interest and principal in the stress
scenarios, given the transaction structure and collateral composition.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Yvonne Tai
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Ola Hannoun-Costa
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
