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New Fannie Mae risk-sharing deal shifts more credit risk onto insurers

Announces fourth Credit Insurance Risk Transfer deal

Seeking to further reduce the taxpayers’ burden, Fannie Mae announced Thursday that it completed its fourth 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 Mae said.

The latest CIRT deal is Fannie Mae’s fourth such deal since the program launched in Dec. 2014, and its third CIRT deal in 2015.

Also, the latest deal, CIRT-2015-3, attracted an international reinsurer for the second time since the program began, Fannie Mae said in a release.

According to Fannie Mae, with CIRT-2015-3, which became effective Aug. 1, 2015, Fannie Mae retains risk for the first 50 basis points of loss on a $7 billion pool of loans.

If this $35.2 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 $176.2 million.

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 three-year anniversary and each anniversary of the effective date thereafter. 

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

The reference loan pool for CIRT-2015-3 consists of 30-year fixed rate loans with loan-to-value ratios greater than 60% and less than or equal to 80%, Fannie Mae said.

Fannie Mae acquired the referenced loans between September and December of 2014.

“As the leading manager of single-family residential credit risk in the industry, we are focused on building a safer, sustainable housing system and our CIRT deals help these efforts,” said Rob Schaefer, vice president for credit enhancement strategy and management.

“Reinsurers seem to understand and appreciate our approach to managing credit risk and as a result, we’ve seen continued interest in our CIRT program,” Schaefer continued. “We look forward to exploring new ways to structure these transactions in the future and to growing the program and the number of reinsurers we work with as well.”

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