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Fannie Mae offloads $205 million in credit risk to insurers in new deal

Pool of loans includes 15-year, 20-year mortgages

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Fannie Mae announced Thursday that it is shifting some of its credit risk away from the taxpayers and onto private insurers in the latest deal from its Credit Insurance Risk Transfer program.

The CIRT program shifts credit risk on a pool of loans to a panel of reinsurers.

In this deal, Fannie Mae is shifting some of the credit risk on an $11.7 billion pool of loans to various insurers.

This latest deal is Fannie Mae’s 10th CIRT deal of the year, but this deal is the first CIRT deal to include 15-year and 20-year fixed rate mortgages.

According to Fannie Mae, the inclusion of the 15-year and 20-year fixed rate mortgages allows the company to offer reinsurers a “more diversified investment opportunity.”

In this deal, CIRT-2016-9, Fannie Mae retains risk for the first 35 basis points of loss on an $11.7 billion pool of loans. If this $41 million retention layer is exhausted, reinsurers would then cover the next 175 basis points of loss on the pool, up to a maximum coverage of approximately $205 million.

The coverage, which took effect on Oct. 1, is provided based upon actual losses for a term of 7.5 years.

According to Fannie Mae, depending on the paydown of the insured pool and the principal amount of insured loans that become seriously delinquent, the aggregate coverage amount may be reduced at the two-year anniversary and each anniversary of the effective date thereafter. 

Fannie Mae also said that the coverage may be canceled at any time on or after the four-year anniversary of the effective date by paying a cancellation fee. 

Fannie Mae said that with this latest deal it has now acquired more than $3 billion of insurance coverage on over $124 billion of loans through the CIRT program.

“With CIRT 2016-9, we identified a new segment of loans for which risk sharing was economical and that proved attractive to our risk-sharing reinsurer partners,” Rob Schaefer, Fannie Mae’s vice president for credit enhancement strategy & management, said.

“By including 15-year and 20-year loans in the transaction, Fannie Mae has expanded the scope of our credit risk transfer programs that help shift risk away from the company, reduce taxpayer risk, and help create a safer, stronger housing finance system,” Schaefer added.

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