DBRS, Inc. (Morningstar DBRS) assigned the following provisional credit ratings to the Connecticut Avenue Securities (CAS) Series 2024-R02 Notes (the Notes) to be issued by Connecticut Avenue Securities Trust 2024-R02 (CAS 2024-R02 or the Issuer).
$256.3 million Class 1M-1 at A (high) (sf)
$229.8 million Class 1M-2 at BBB (high) (sf)
$176.8 million Class 1B-1 at BBB (low) (sf)
$88.4 million Class 1B-2 at BB (sf)
$76.6 million Class 1M-2A at A (sf)
$76.6 million Class 1M-2B at A (low) (sf)
$76.6 million Class 1M-2C at BBB (high) (sf)
$88.4 million Class 1B-1A at BBB (high) (sf)
$88.4 million Class 1B-1B at BBB (low) (sf)
$76.6 million Class 1E-A1 at A (sf)
$76.6 million Class 1A-I1 at A (sf)
$76.6 million Class 1E-A2 at A (sf)
$76.6 million Class 1A-I2 at A (sf)
$76.6 million Class 1E-A3 at A (sf)
$76.6 million Class 1A-I3 at A (sf)
$76.6 million Class 1E-A4 at A (sf)
$76.6 million Class 1A-I4 at A (sf)
$76.6 million Class 1E-B1 at A (low) (sf)
$76.6 million Class 1B-I1 at A (low) (sf)
$76.6 million Class 1E-B2 at A (low) (sf)
$76.6 million Class 1B-I2 at A (low) (sf)
$76.6 million Class 1E-B3 at A (low) (sf)
$76.6 million Class 1B-I3 at A (low) (sf)
$76.6 million Class 1E-B4 at A (low) (sf)
$76.6 million Class 1B-I4 at A (low) (sf)
$76.6 million Class 1E-C1 at BBB (high) (sf)
$76.6 million Class 1C-I1 at BBB (high) (sf)
$76.6 million Class 1E-C2 at BBB (high) (sf)
$76.6 million Class 1C-I2 at BBB (high) (sf)
$76.6 million Class 1E-C3 at BBB (high) (sf)
$76.6 million Class 1C-I3 at BBB (high) (sf)
$76.6 million Class 1E-C4 at BBB (high) (sf)
$76.6 million Class 1C-I4 at BBB (high) (sf)
$153.2 million Class 1E-D1 at A (low) (sf)
$153.2 million Class 1E-D2 at A (low) (sf)
$153.2 million Class 1E-D3 at A (low) (sf)
$153.2 million Class 1E-D4 at A (low) (sf)
$153.2 million Class 1E-D5 at A (low) (sf)
$153.2 million Class 1E-F1 at BBB (high) (sf)
$153.2 million Class 1E-F2 at BBB (high) (sf)
$153.2 million Class 1E-F3 at BBB (high) (sf)
$153.2 million Class 1E-F4 at BBB (high) (sf)
$153.2 million Class 1E-F5 at BBB (high) (sf)
$153.2 million Class 1-X1 at BBB (high) (sf)
$153.2 million Class 1-X2 at BBB (high) (sf)
$153.2 million Class 1-X3 at BBB (high) (sf)
$153.2 million Class 1-X4 at BBB (high) (sf)
$153.2 million Class 1-Y1 at BBB (high) (sf)
$153.2 million Class 1-Y2 at BBB (high) (sf)
$153.2 million Class 1-Y3 at BBB (high) (sf)
$153.2 million Class 1-Y4 at BBB (high) (sf)
$76.6 million Class 1-J1 at BBB (high) (sf)
$76.6 million Class 1-J2 at BBB (high) (sf)
$76.6 million Class 1-J3 at BBB (high) (sf)
$76.6 million Class 1-J4 at BBB (high) (sf)
$153.2 million Class 1-K1 at BBB (high) (sf)
$153.2 million Class 1-K2 at BBB (high) (sf)
$153.2 million Class 1-K3 at BBB (high) (sf)
$153.2 million Class 1-K4 at BBB (high) (sf)
$229.8 million Class 1M-2Y at BBB (high) (sf)
$229.8 million Class 1M-2X at BBB (high) (sf)
$176.8 million Class 1B-1Y at BBB (low) (sf)
$176.8 million Class 1B-1X at BBB (low) (sf)
$88.4 million Class 1B-2Y at BB (sf)
$88.4 million Class 1B-2X at BB (sf)
Classes 1M-2, 1E-A1, 1E-A2, 1E-A3, 1E-A4, 1E-B1, 1E-B2, 1E-B3, 1E-B4, 1E-C1, 1E-C2, 1E-C3, 1E-C4, 1E-D1, 1E-D2, 1E-D3, 1E-D4, 1E-D5, 1E-F1, 1E-F2, 1E-F3, 1E-F4, 1E-F5, 1-J1, 1-J2, 1-J3, 1-J4, 1-K1, 1-K2, 1-K3, 1-K4, 1M-2Y, 1B-1, 1B-1Y, and 1B-2Y are Related Combinable and Recombinable Notes (RCR Notes). Classes 1A-I1, 1A-I2, 1A-I3, 1A-I4, 1B-I1, 1B-I2, 1B-I3, 1B-I4, 1C-I1, 1C-I2, 1C-I3, 1C-I4, 1-X1, 1-X2, 1-X3, 1-X4, 1-Y1, 1-Y2, 1-Y3, 1-Y4, 1M-2X, 1B-1X, and 1B-2X are interest-only (IO) RCR Notes.
The A (high) (sf), A (sf), A (low) (sf), BBB (high) (sf), BBB (low) (sf), and BB (sf) credit ratings reflect 3.80%, 3.37%, 2.93%, 2.50%, 1.50%, and 1.00% of credit enhancement, respectively. Other than the specified classes above, Morningstar DBRS does not rate any other classes in this transaction.
The transaction is the 61st benchmark transaction in the CAS series. The Notes are subject to the credit and principal payment risk of a certain reference pool (the Reference Pool) of residential mortgage loans held in various Fannie Mae-guaranteed mortgage-backed securities. As of the Cut-Off Date, the Reference Pool consists of 55,685 greater-than-20-year term, fully amortizing, first-lien, fixed-rate mortgage loans underwritten to a full documentation standard, with original loan-to-value (LTV) ratios greater than 60% and less than or equal to 80%. The mortgage loans were estimated to be originated on or after September 2022 and were acquired by Fannie Mae between April 1, 2023, and July 31, 2023.
On the Closing Date, the Issuer will enter into a Collateral Administration Agreement (CAA) with Fannie Mae and the Indenture Trustee. Fannie Mae, as the credit protection buyer, will be required to make transfer amount payments. The Issuer is expected to use the aggregate proceeds realized from the sale of the Notes to purchase certain eligible investments to be held in a securities account. The eligible investments are restricted to highly rated, short-term investments. Cash flow from the Reference Pool is not used to make any payments; instead, a portion of the eligible investments held in the securities account will be liquidated to make principal payments to the Noteholders and return amount, if any, to Fannie Mae upon the occurrence of certain specified credit events and modification events.
The coupon rates for the Notes are based on the 30-day average Secured Overnight Financing Rate (SOFR). There are replacement provisions in place in the event that SOFR is no longer available; please see the Offering Memorandum (OM) for more details. Morningstar DBRS did not run interest rate stresses for this transaction, as the interest is not linked to the performance of the reference obligations. Instead, the Issuer will use the net investment earnings on the eligible investments together with Fannie Mae's transfer amount payments to pay interest to the Noteholders.
In this transaction, approximately 19.4% of the loans were originated using property values determined by using Fannie Mae's Value Acceptance (appraisal waiver) rather than a traditional full appraisal. Additionally, approximately 0.9% of the loans were originated using appraisal waiver plus property data collection. Loans where the appraisal waiver is offered generally have better credit attributes. Please see the OM for more details about the appraisal waiver.
The calculation of principal payments to the Notes will be based on actual principal collected on the Reference Pool. The scheduled and unscheduled principal will be combined and only be allocated pro rata between the senior and nonsenior tranches if the performance tests are satisfied. For CAS 2024-R02, the minimum credit enhancement test is set to pass at the Closing Date. This allows rated classes to receive principal payments from the First Payment Date, provided the other two performance tests-delinquency test and cumulative net loss test-are met. Additionally, the nonsenior tranches will also be entitled to supplemental subordinate reduction amounts if the offered reference tranche percentage increases above 5.50%.
The interest payments for these transactions are not linked to the performance of the reference obligations except to the extent that modification losses have occurred.
The Notes will be scheduled to mature on the payment date in February 2044, but will be subject to mandatory redemption prior to the scheduled maturity date upon the termination of the CAA.
The administrator and trustor of the transaction will be Fannie Mae. Computershare Trust Company, N.A. (rated BBB and R-2 (middle) with a Stable trend by Morningstar DBRS) will act as the Indenture Trustee, Exchange Administrator, Custodian, and Investment Agent. U.S. Bank National Association (rated AA (high) with a Negative trend and R-1 (high) with a Stable trend by Morningstar DBRS) will act as the Delaware Trustee.
The Reference Pool consists of approximately 3.2% of loans originated under the HomeReady program. HomeReady is Fannie Mae's affordable mortgage product designed to expand the availability of mortgage financing to creditworthy low- to moderate-income borrowers.
If a reference obligation is refinanced under the High LTV Refinance Program, then the resulting refinanced reference obligation may be included in the Reference Pool as a replacement of the original reference obligation. The High LTV Refinance Program provides refinance opportunities to borrowers with existing Fannie Mae mortgages who are current in their mortgage payments but whose LTV ratios exceed the maximum permitted for standard refinance products. The refinancing and replacement of a reference obligation under this program will not constitute a credit event.
The transaction assumptions consider Morningstar DBRS' baseline macroeconomic scenarios for rated sovereign economies, available in its commentary 'Baseline Macroeconomic Scenarios for Rated Sovereigns: December 2023 Update,' published on December 19, 2023.These baseline macroeconomic scenarios replace Morningstar DBRS' moderate and adverse COVID-19 pandemic scenarios, which were first published in April 2020.
The credit ratings reflect transactional strengths that include the following:
Seller (or lender)/servicer approval process and quality control platform.
Well-diversified reference pool.
High-quality credit and loan attributes.
Strong alignment of interest.
Extensive performance history.
The transaction also includes the following challenges:
Representation and warranties framework.
Limited third-party due diligence.
Counterparty exposure.
The full description of the strengths, challenges, and mitigating factors is detailed in the related report.
Morningstar DBRS' credit ratings on the Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the rated Notes are the related Interest Payment Amount and the Class Principal Balance (for non-IO Notes).
Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.
Notes:
All figures are in U.S. dollars unless otherwise noted.
The principal methodology applicable to the credit ratings is RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology (August 31, 2023), https://dbrs.morningstar.com/research/420108.
Other methodologies referenced in this transaction are listed at the end of this press release.
The credit rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the credit rating process for this credit rating action.
Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.
This is a solicited credit rating.
A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.
Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.
DBRS, Inc.
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New York, NY 10005 USA
Tel. +1 212 806-3277
The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.
Assessing U.S. RMBS Pools Under the Ability-to-Repay Rules (April 28, 2023), https://dbrs.morningstar.com/research/413297
Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
Third-Party Due-Diligence Criteria for U.S. RMBS Transactions (September 8, 2023), https://dbrs.morningstar.com/research/420333
Representations and Warranties Criteria for U.S. RMBS Transactions (May 16, 2023), https://dbrs.morningstar.com/research/414076
Legal Criteria for U.S. Structured Finance (December 7, 2023), https://dbrs.morningstar.com/research/425081
Operational Risk Assessment for U.S. RMBS Originators (August 31, 2023), https://dbrs.morningstar.com/research/420106
Operational Risk Assessment for U.S. RMBS Servicers (August 31, 2023), https://dbrs.morningstar.com/research/420107
For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.
FEDERAL NATIONAL MORTGAGE ASSOCIATION 
