EFTA01378350

INTERNAL USE ONLY DO NOT DISTRIBUTE IN PART OR IN WHOLE Structured Finance > Mortgage Credit GSE Mortgage Credit Risk Transfer Deals Updated: Sep 28, 2015 Trade Idea: Buy GSE Mortgage Credit Risk Transfer Deals Investment Rationale: Security: The bonds are unsecured debt obligations of the GSEs where the cashflows are linked to the credit and prepayment behavior of the underlying reference pool of mortgages currently held in agency MBS. These deals are linked to and designed to provide credit protection to the GSEs on the underlying reference pool of loans as mandated under Dodd-Frank. These are uncapped LIBOR-based floaters with a legal final maturity at the end of 10 years from issuance. Credit enhancement: These classes are the mezzanine tranches of the structure. Subordinate tranches provide credit enhancement for the senior tranche (which Freddie and Fannie retain) and for each class of more senior subordinate tranches as losses are allocated in reverse sequential order. Credit enhancement for the M-3 Notes is a first-loss piece (120bp of capital structure) with the M-2 and M-1 with 3.0% and 4.2% of credit enhancement, respectively. Structural attributes: Unlike typical cash transactions where investors are exposed to actual losses on the underlying pool, deal losses will be incurred upon pre-defined credit events defined as 180 days or more delinquent, short-sale, and deed in lieu of and REO. Loans will be removed from the reference pool should a credit event occur and the loss will be the net credit event amount times an applicable fixed severity based on a sliding scale, eliminating the potential for servicer action or government loss mitigation programs (ex. principal modifications) to impact ultimate losses. Performance has been very good with very few loans making it into late-stage delinquency which is attributed to the standardized pool selection criteria and positive housing market. ) Relative value: While this is a relatively new asset class, having began in 30 2013, we feel this sector provides value and a good way to gain exposure to mortgage credit compared to legacy RMBS and RMBS 2.0. The GSEs have committed to quarterly issuance for 2015 and we expect continued support given the FHFA's strategic goal of contracting the GSEs' dominant presence in the market and promoting risk- sharing between the GSEs and private market participants. Recommendation s : View Trade Horizon Deal& Tranche Info Ratings Cusip Average Lae: Tranche Discount S Price Yield' Abddy to Source Duration Par Margin Similar Buy 12+ Months STACR 2015-CN1 M3 Bel (M) 3131GODA41 8.9/52 $345mm 410 S100-09 5.77% Quarterly Issuance Buy 12+ Months STACR 20154741 M2 Baal/BBB (Min) 313700013 22/2.6 S230mm 190 $101.10 2.79% Quarterly Issuance Buy 12+ Months STACR 20154141 M1 A2JA (M/D) 313700009 0.1/0.7 S230mm 115 $100-02 1.54% Quarterly Issuance •Bastrl on forward curve, as of 9/28/15 63 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL DB-SDNY-0075519 SDNY_GM_00221703 EFTA01378350