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Investments

Fannie Mae announces largest Credit Insurance Risk Transfer deal

First such transaction of 2016

Fannie Mae announced its first Credit Insurance Risk Transfer transactions of 2016, shifting the credit risk on pools of single-family loans with a combined unpaid principal balance of approximately $19.5 billion to a group of insurers and reinsurers.

“Our CIRT transactions reduce credit risk for Fannie Mae while bringing private capital into the housing market,” said Rob Schaefer, vice president for Credit Enhancement Strategy & Management, Fannie Mae. “We’re pleased with the success of our credit insurance transactions and plan to continue to pursue additional risk sharing opportunities through CIRT and our Connecticut Avenue Securities.”

The deals, CIRT 2016-1 and CIRT 2016-2, represent the largest cumulative CIRT transaction to date.

The loans were acquired by Fannie Mae from December 2014 through April 2015.

Since the program's inception in 2014, Fannie Mae has acquired nearly $1.7 billion of insurance coverage on over $66 billion of loans through by nine CIRT transactions

Here are the details for both transactions:  

  • In CIRT 2016-1, which became effective Feb. 1, 2016, Fannie Mae retains risk for the first 50 basis points of loss on an $8.8 billion pool of loans. If this $44 million retention layer is exhausted, reinsurers would cover the next 250 basis points of loss on the pool, up to a maximum coverage of approximately $220 million.
  • With CIRT 2016-2, which also became effective Feb. 1, 2016, Fannie Mae retains risk for the first 50 basis points of loss on a $10.7 billion pool of loans. If this $53 million retention layer is exhausted, an insurer would cover the next 250 basis points of loss on the pool, up to a maximum coverage of approximately $267 million. 

Fannie added that in both deals, coverage is provided based upon actual losses for a term of 10 years. Depending upon the pay down of the insured pool and the principal 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 closed out its 2015 credit risk-sharing program with the seventh credit risk-sharing transactions as part of its Credit Insurance Risk Transfer program.

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