InvestmentsMortgage

Fannie Mae unveils new mortgage risk-share deal

Shifting more risk to private market

Fannie Mae is growing its products for mortgage investors.

After putting together several successful risk-sharing deals (see the list of coverage by clicking here), today the government-sponsored enterprise unveiled a new product.

The credit insurance risk transfer deal shifts credit risk on a pool of loans to a panel of domestic reinsurers.

The company said the offer is proof that Fannie Mae is diversifying the role of private capital in the secondary mortgage market. Earlier this week, the GSE launched a 3% down mortgage product.

“The credit insurance risk transfer deal shifts credit risk on a pool of loans to a panel of domestic reinsurers,” the company said in a statement.

“This unique transaction uses actual losses to calculate benefits, for which risk investors have expressed a preference,” said Andrew Bon Salle, EVP of single-family underwriting, pricing and capital markets.

Bon Salle said he expects CIRT will be a template for similar transactions Fannie may execute in the future.

“The reinsurance market is an attractive potential source of private capital because it currently bears a small amount of U.S. residential mortgage risk. We are pleased to test new and innovative ways to diversify our risk sharing counterparties and to structure this deal in a manner that promotes efficiency and safety.”

In CIRT-2014-1, Fannie Mae retains risk on the first 50 basis points of loss on a $6.419 billion pool of loans.

Fannie Mae also provided actual loss coverage for the next 300 basis points of loss on the $6.419 billion pool, up to a maximum coverage of approximately $193 million, should the former run out.

Duration is 10 years. However, the aggregate coverage amount may be reduced at the 3-year, 5-year and 7-year anniversaries from the effective date.

The reference loan pool for the transaction consists of 30-year fixed rate loans with loan-to-value ratios between 60 and 95%, the company said in a statement.

Loans over 80% LTV are already covered by primary mortgage insurance, and this credit risk transfer provides supplemental coverage for losses that exceed that covered by primary mortgage insurance, the statement said.

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