DBRS Assigns Provisional Ratings to Connecticut Avenue Securities, Series 2017-C03

DBRS, Inc. (DBRS) has today assigned the following provisional ratings to the Connecticut Avenue Securities (CAS), Series 2017-C03 notes (the Notes) issued by Fannie Mae (the Issuer):

-- $568.2 million Class 1M-1 at BBB (sf)
-- $199.8 million Class 1M-2A at BB (high) (sf)
-- $203.8 million Class 1M-2B at BB (sf)
-- $203.8 million Class 1M-2C at B (high) (sf)
-- $607.3 million Class 1M-2 at B (high) (sf)
-- $199.8 million Class 1A-I1 at BB (high) (sf)
-- $199.8 million Class 1E-A1 at BB (high) (sf)
-- $199.8 million Class 1A-I2 at BB (high) (sf)
-- $199.8 million Class 1E-A2 at BB (high) (sf)
-- $199.8 million Class 1A-I3 at BB (high) (sf)
-- $199.8 million Class 1E-A3 at BB (high) (sf)
-- $199.8 million Class 1A-I4 at BB (high) (sf)
-- $199.8 million Class 1E-A4 at BB (high) (sf)
-- $203.8 million Class 1B-I1 at BB (sf)
-- $203.8 million Class 1E-B1 at BB (sf)
-- $203.8 million Class 1B-I2 at BB (sf)
-- $203.8 million Class 1E-B2 at BB (sf)
-- $203.8 million Class 1B-I3 at BB (sf)
-- $203.8 million Class 1E-B3 at BB (sf)
-- $203.8 million Class 1B-I4 at BB (sf)
-- $203.8 million Class 1E-B4 at BB (sf)
-- $203.8 million Class 1C-I1 at B (high) (sf)
-- $203.8 million Class 1E-C1 at B (high) (sf)
-- $203.8 million Class 1C-I2 at B (high) (sf)
-- $203.8 million Class 1E-C2 at B (high) (sf)
-- $203.8 million Class 1C-I3 at B (high) (sf)
-- $203.8 million Class 1E-C3 at B (high) (sf)
-- $203.8 million Class 1C-I4 at B (high) (sf)
-- $203.8 million Class 1E-C4 at B (high) (sf)
-- $403.6 million Class 1E-D1 at BB (sf)
-- $403.6 million Class 1E-D2 at BB (sf)
-- $403.6 million Class 1E-D3 at BB (sf)
-- $403.6 million Class 1E-D4 at BB (sf)
-- $403.6 million Class 1E-D5 at BB (sf)
-- $407.5 million Class 1E-F1 at B (high) (sf)
-- $407.5 million Class 1E-F2 at B (high) (sf)
-- $407.5 million Class 1E-F3 at B (high) (sf)
-- $407.5 million Class 1E-F4 at B (high) (sf)
-- $407.5 million Class 1E-F5 at B (high) (sf)
-- $403.6 million Class 1-X1 at BB (sf)
-- $403.6 million Class 1-X2 at BB (sf)
-- $403.6 million Class 1-X3 at BB (sf)
-- $403.6 million Class 1-X4 at BB (sf)
-- $407.5 million Class 1-Y1 at B (high) (sf)
-- $407.5 million Class 1-Y2 at B (high) (sf)
-- $407.5 million Class 1-Y3 at B (high) (sf)
-- $407.5 million Class 1-Y4 at B (high) (sf)

The holders of Class 1M-2 may exchange for proportionate interests in the class 1M2A, 1M-2B and 1M-2C (Exchangeable Notes) and vice versa. Holders of the Exchangeable Notes may further exchange for proportionate interests in the Related Combinable or Recombinable (RCR) Notes and vice versa. Certain classes of the RCR Notes may be further exchanged for other classes of RCR Notes and vice versa. Classes 1M-2, 1A-I1, 1E-A1,1A-I2, 1E-A2, 1A-I3, 1E-A3, 1A-I4, 1E-A4, 1B-I1, 1E-B1, 1B-I2, 1E-B2, IB-I3, 1E-B3, IB-I4, 1E-B4, IC-I1, 1E-C1, IC-I2, 1E-C2, IC-I3, 1E-C3, IC-I4, 1E-C4, 1E-D1, 1E-D2, 1E-D3, 1E-D4,1E-D5, 1E-F1, 1E-F2, 1E-F3, 1E-F4,1E-F5, I-X1, 1-X2, 1-X3, 1-X4, 1-Y1, I-Y2, 1-Y3 and 1-Y4 are RCR Notes.

Classes 1A-I1, 1A-I2, 1A-I3, 1A-I4, 1B-I1, 1B-I2, IB-I3, IB-I4, IC-I1, IC-I2, IC-I3, IC-I4, I-X1, 1-X2, 1-X3, 1-X4, 1-Y1, I-Y2, 1-Y3 and 1-Y4 are interest-only notes. The class balances represent notional amounts.

The BBB (sf) ratings on the Notes reflect the 2.55% of credit enhancement provided by subordinated Notes in the pool. The BB (high), BB (sf) and B high (sf) ratings reflect 2.04%, 1.52% and 1.00% of credit enhancement, respectively.

Other than the specified classes above, DBRS does not rate any other classes in this transaction.

The Notes in the transaction represent unsecured general obligations of Fannie Mae. The Notes are subject to the credit and principal payment risk of a certain reference pool (the Reference Pool) of residential mortgages held in various Fannie Mae-guaranteed mortgage-backed securities.

The Reference Pool consists of 167,115 greater than 20-year fully amortizing first-lien, fixed-rate mortgage loans underwritten to a full documentation standard with original loan-to-value ratios greater than 60% and less than or equal to 80%. Payments to the Notes will be determined by the credit performance of the Reference Pool.

Cash flow from the Reference Pool will not be used to make any payment to the Noteholders; instead, Fannie Mae will be responsible for making monthly interest payments at the note rate and periodic principal payments on the Notes based on the actual principal payments it collects from the Reference Pool.

This transaction is the 11th transaction in the CAS series where Note writedowns are based on actual realized losses and not on a predetermined set of loss severities. Furthermore, unlike earlier CAS transactions where a credit event could occur as early as the date on which a mortgage becomes 180 or more days delinquent, for this transaction a delinquent mortgage would typically need to go through the entire liquidation process for a credit event to occur.

Fannie Mae is obligated to retire the Notes by October 2029 by paying an amount equal to the remaining class balance plus accrued and unpaid interest. The Notes also may be redeemed on or after (1) the date on which the Reference Pool pays down to less than 10% of its cut-off date balance or (2) the payment date in April 2027, whichever comes first. If there are unrecovered losses for any of the Notes as of the termination date, then Noteholders are entitled to certain projected recovery amounts.

DBRS notes the following strengths and challenges for this transaction:

STRENGTHS
-- Seller (or lender)/servicer approval process and quality control platform,
-- Well-diversified reference pool,
-- Strong alignment of interest,
-- Strong structural protections and
-- Extensive performance history.

CHALLENGES
-- Unsecured obligation of Fannie Mae,
-- Representation and warranties framework and
-- Limited third-party due diligence.

These strengths, challenges and their mitigating factors are discussed in more detail in the related presale report.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology, Unified Interest Rate Model for Rating U.S. Structured Finance Transactions, Third-Party Due Diligence Criteria for U.S. RMBS Transactions, Representations and Warranties Criteria for U.S. RMBS Transactions, Legal Criteria for U.S. Structured Finance, Operational Risk Assessment for U.S. RMBS Originators and Operational Risk Assessment for U.S. RMBS Servicers, which can be found on dbrs.com under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

The full report providing additional analytical detail is available by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.