Investments

Fannie Mae offloads more credit risk to insurers

Announces third deal under Credit Insurance Risk Transfer program

Seeking to further decrease the taxpayers’ liability, Fannie Mae announced Tuesday that it completed its third credit risk-sharing transaction as part of its Credit Insurance Risk Transfer program.

The Credit Insurance Risk Transfer program shifts credit risk on a pool of loans to a panel of reinsurers. The deal helps to further diversify its counterparty exposure and reduce taxpayer risk by increasing the role of private capital in the mortgage market, Fannie said.

Fannie Mae completed its first CIRT offering in in December 2014, completed its second in July of this year and has now completed its third such deal.

The deal CIRT-2015-2 became effective July 1.

According to Fannie Mae, CIRT-2015-2 marked the first time since the program’s inception in 2014 that an international reinsurer participated in this type of Fannie Mae risk-sharing transaction.

Under the CIRT program, Fannie Mae retains risk for the first 50 basis points of loss on an $8.1 billion pool of loans. If this $40.5 million retention layer were exhausted, reinsurers would cover the next 250 basis points of loss on the pool, up to a maximum coverage of approximately $202.5 million.

The reference loan pool for CIRT-2015-2 consists of 30-year fixed rate loans with loan-to-value ratios greater than 60% and less than or equal to 80%, Fannie said.

Fannie Mae acquired the loans from April through August of 2014.

According to Fannie, the coverage is provided based upon actual losses for a term of 10 years. Depending upon the pay down of the insured pool and the amount of insured loans that become seriously delinquent, the aggregate coverage amount may be reduced at the 3-year anniversary and each anniversary of the effective date thereafter.

Fannie Mae may cancel the coverage at any time after the 5-year anniversary of the effective date by paying a cancellation fee.

“Through CIRT, we remain focused on finding new ways to build liquidity and move credit risk away from Fannie Mae,” said Rob Schaefer, vice president for credit enhancement strategy & management.

“In this transaction we attracted new global capital, providing opportunities for reinsurers to gain exposure to the U.S. housing market,” Schaefer continued.

“We’ve focused on educating reinsurers on our company’s strategic approach to managing credit risk and to explore opportunities to work together,” he added.

Schaefer added that Fannie wants to continue to issue CIRT deals in the future.

“We want to continue to lead this space and grow the CIRT program as a repeatable, frequent structure, and increase the number of reinsurers we work with on these deals,” he said. “We look forward to bringing similar transactions to market in the future.”

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