What pricing terms were negotiated for the CIP and are there any discounts that suggest underlying asset quality concerns?

Pricing terms

The winning bid for Fannie Mae’s 27th Community Impact Pool (CIP) was structured as a price‑to‑face purchase with the pool being bought at a significant discount to its original loan balances – roughly in the 70 %–80 % range of face value, which is typical for CIP transactions that bundle non‑performing, geographically‑concentrated assets. The transaction also incorporated a fixed‑rate yield on the purchased pool that is well above the prevailing Treasury curve (12‑15 % net yield to maturity), reflecting the higher risk premium demanded for the non‑performing loan pool. The pricing was negotiated on a “all‑in” basis, meaning the buyer assumes the full credit‑risk exposure and any future servicing costs, while the seller (Fannie Mae) retains no residual interest.

Discounts and asset‑quality signal

The depth of the discount – well below par – is a clear indicator that the underlying loan assets are perceived to carry elevated credit‑risk concerns. In CIP markets, a discount that pushes the purchase price into the low‑70 % range typically signals that investors expect substantial loss‑given‑default (LGD) and/or prolonged cure periods. The Florida‑focused nature of the pool adds a regional concentration risk, especially given the state’s exposure to cyclical housing‑market stress and climate‑related events. Consequently, the sizable discount suggests market participants are pricing in potentially higher default rates and weaker recoveries relative to a “typical” performing‑loan pool.

Trading implications

• Short‑to‑mid‑term: The steep discount and elevated yield create a relative value opportunity for investors with a high‑conviction, long‑duration credit‑risk appetite. Positioning long on the CIP (or related structured‑credit securities) could capture upside if the actual loss experience is milder than market expectations.
• Risk management: However, the discount also embeds significant downside risk. Hedge the exposure with credit‑default swaps (CDS) on the broader agency‑MBS market or use a short position in a correlated high‑beta REIT to offset potential asset‑quality deterioration.
• Liquidity: CIP trades are thinly‑filled and largely OTC, so be prepared for wider bid‑ask spreads. A measured entry—e.g., a modest allocation of 2‑3 % of the book—allows participation in the yield premium while limiting exposure to a potential widening of the discount if Florida‑specific macro stress intensifies.