Fannie Mae closes 2015 risk-sharing program with latest deal with insurers

Completes sixth Credit Insurance Risk Transfer deal of 2015

Fannie Mae announced earlier this week that it closed out its 2015 credit risk-sharing program with the seventh credit risk-sharing transactions 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 is Fannie Mae’s sixth of 2015, and its seventh since the program launched in Dec. 2014.

This transaction, CIRT 2015-6, shifts credit risk on a pool of single-family loans to a panel of reinsurers, Fannie Mae.

But unlike in previous CIRT deals, the covered loan pool consists of 5/1, 7/1 and 10/1 fixed-period, adjustable-rate mortgages for the first time, which allowed the Fannie Mae to offer a new investment opportunity for reinsurers, the government-sponsored enterprise said.

Through this latest deal, Fannie Mae has this year acquired more than $1 billion of CIRT insurance coverage on over $40 billion of loans with six CIRT transactions, and over $1.2 billion of coverage on over $46 billion of loans since the program's inception in 2014, Fannie Mae said.

In CIRT-2015-6, which became effective November 1, 2015, Fannie Mae retains risk for the first 50 basis points of loss on an $8.2 billion pool of loans.

If this $41 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 $206 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 3-year anniversary and each anniversary of the effective date thereafter.

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

“Fannie Mae remains focused on advancing and driving strong interest and results for our credit risk transfer programs that help shift risk away from the company and to holders of private capital, reduce taxpayer risk and help create a safer, stronger housing finance system,” said Rob Schaefer, vice president for credit enhancement strategy & management.

“With our final CIRT deal of 2015, we continued to find ways to interest reinsurers with access to varied loan collateral by introducing ARM loans to our transactions. Insurers and reinsurers tell us that they value our commitment to engage their industry through our CIRT program, and the unique, customized risk opportunities that CIRT can offer, helping insurers and reinsurers to expand their risk portfolio,” Schaefer added.

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